Investment Decisions

Investment Decisions

Q1 'A dollar today is worth more than a dollar tomorrow'

As a famous saying 'A dollar today is worth more than a dollar tomorrow' is heard by many of us, what I gain knowledge from this statement is that, inflation is always there to erode the purchasing power of the money so for this purpose there is a concept of time value of money, which in general shows the present value of money, which is to be invested in some future project, so for this purpose we will discuss in details what Net present value is.

Net Present Value

NPV is an indicator that lets you take a decision on the profitability of a project or no investment. Like any project, we start with an initial investment (a large sum of money at first), which allows us to create and run our project, to await the return of earnings thereafter. Well functioning in the NPV is very simple; it is to compare the earnings of a project to its initial investment in short(Kim ,2005).

The Net Present Value (NPV or NPV) of an investment (project) is the difference between the sum of discounted cash flows that are expected from the investment and the amount initially invested. It is a traditional method of assessment (often for a project) in the methodology used to measure the discounted cash flows , for which you take the following steps:

Steps in Calculating the Net Present Value

Calculation of expected free cash flows (often for years) that result from the investment

Subtract / discount for the cost of capital (an interest rate that takes into account the time and risk)

The intermediate result is referred to as Present Value.

Subtract the initial investment

The end result is referred to as net present value.

Consequently, the NPV is expressed as an amount which will generate a value investment. This is done by measuring all cash flows generated over time given the current point in the present.

If the NPV method takes out a positive amount, the project should be undertaken.

Limitations of Net Present Value

Although the measurement of the NPV is widely used for making investment decisions, a disadvantage of NPV is that nominee of the flexibility / uncertainty following the decision of the project. See Real Options for more information.

Moreover, the NPV cannot deal with intangible benefits. This inability does diminish its usefulness to the issues and strategic projects. See IC Rating for more information (Tom, 2003).

Q2 .Market Price of a Bond and its Yield

Sale and purchase of bonds of different companies at market price, which may differ significantly from nominal. If the nominal price is determined at the time of issuance of the security issuer, the market price of bonds is determined as a result of trades on the exchange.

In some cases, the market price of bonds can be several times higher than its face value, since the company issued bonds, show stable performance. Also, experts distinguish between "pure" and "dirty" price of the bond. "Pure" bond price includes the cost of a security without interest, a "dirty" price - the value of the bond plus interest that had been assessed for the period of its ...