Important Points for IC 99 - Asset Management Exam
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Money has the time value. A rupee today is more valuable than a rupee at some future date, say after one year.
Money loses its value over time which makes it more desirable to have it now rather than on some future date.
The present or future value of cash flows is determined by using a discount rate which is also known as cost of capital, or WACC or required rate of return, which is based on the following factors : i) Rate of Inflation, ii) Interest rate, iii) Risk premium
The principles of Time Value of Money concept is used in Asset Liability Management of any organization especially financially institutions like banks, insurance etc. Investors and portfolio managers are required to apply the time value of money in every financial or investment decision to measure and consider the financial impact of the timing of cash flows in investment returns.
The time value of money concept is for evaluation of cash flows from investments in projects or financial assets of different point of time by converting them into present value or future value as the case may be.
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