Time Value of Money
Table of Contents
A. The Time Value of Money Concept B. Different Investment Instruments ¥ Return Versus Risk ¥ Money Market Instruments 1- Treasury Bills 2- Bank Deposits 3- Commercial Paper ¥ Capital Market Instruments 1- Bonds 2- Preferred Stock 3- Common Stock C. Methods Used by Firms to Raise Funds ¥ Short Term Debt ¥ Long Term Debt ¥ Bond Funding ¥ Equity Funding D. Price Fluctuations: Why Prices Move? E. Invest Directly in The Stock Market Or Indirectly in Mutual Funds Or Make Use of Portfolio Management Firms? F. How to Build Your Investment Strategy? G. How to Construct Your Portfolio? H. Why It Is Essential to Review Your Portfolio?
The Time Value Of Money Concept Does Money Have to Generate Income? Why? Why donÕt I keep my money under the mattress or locked in a safe at home? Because each pound not saved and kept as idle cash has a decreasing value. In other words, one pound today is worth less a year later. But really does money have a value? Yes, money has a value since prices usually increase, leading to a decrease in the purchasing power of money. This phenomenon is called inflation. A year ago, my brother and I had LE 1000 each. My brother decided to keep his money at home locked in a safe, while I deposited the money at a bank and received 10% interest on my account. Now, my initial amount has increased to LE 1 100, while my brother still has the same amount of LE 1000. Given that the inflation rate in Egypt is 4%, by depositing my principal amount in the bank, I earned 10%, which is higher than the inflation rate. My brother did not earn at least an amount to mitigate the diminishing value of money caused by inflation. Furthermore my brotherÕs opportunity cost was 10%, which is the interest forgone if he would have deposited his money in the bank. Therefore we should not keep our money idle but rather invest it to at least earn the rate of inflation. What Are The Different Investment Channels, Where Can I invest My Money? Return Varies
A. The Time Value of Money Concept B. Different Investment Instruments ¥ Return Versus Risk ¥ Money Market Instruments 1- Treasury Bills 2- Bank Deposits 3- Commercial Paper ¥ Capital Market Instruments 1- Bonds 2- Preferred Stock 3- Common Stock C. Methods Used by Firms to Raise Funds ¥ Short Term Debt ¥ Long Term Debt ¥ Bond Funding ¥ Equity Funding D. Price Fluctuations: Why Prices Move? E. Invest Directly in The Stock Market Or Indirectly in Mutual Funds Or Make Use of Portfolio Management Firms? F. How to Build Your Investment Strategy? G. How to Construct Your Portfolio? H. Why It Is Essential to Review Your Portfolio?
The Time Value Of Money Concept Does Money Have to Generate Income? Why? Why donÕt I keep my money under the mattress or locked in a safe at home? Because each pound not saved and kept as idle cash has a decreasing value. In other words, one pound today is worth less a year later. But really does money have a value? Yes, money has a value since prices usually increase, leading to a decrease in the purchasing power of money. This phenomenon is called inflation. A year ago, my brother and I had LE 1000 each. My brother decided to keep his money at home locked in a safe, while I deposited the money at a bank and received 10% interest on my account. Now, my initial amount has increased to LE 1 100, while my brother still has the same amount of LE 1000. Given that the inflation rate in Egypt is 4%, by depositing my principal amount in the bank, I earned 10%, which is higher than the inflation rate. My brother did not earn at least an amount to mitigate the diminishing value of money caused by inflation. Furthermore my brotherÕs opportunity cost was 10%, which is the interest forgone if he would have deposited his money in the bank. Therefore we should not keep our money idle but rather invest it to at least earn the rate of inflation. What Are The Different Investment Channels, Where Can I invest My Money? Return Varies