Time Value of Money

What will be your choice?

What will be your decision?

Definition of Time Value of Money.

To start our discussion, we shall first visit the concept of Time Value of Money.

Time Value of Money is a concept rather important for us to understand inflation and investment. It is one of the useful tool to make investment decision and also to correctly calculate the real return of an investment.

One of the important parameter in TVM calculation will be the potential earning capacity. Interest rate for fixed deposit account is one of the typical example of potential earning capacity and it is deemed risk free.

Scenario with 3% interest rate.

For option 1, there will be no calculation involved. For option 2, for each RM 100,000 to be received in the future will be equivalent to a value today (PV). When we sum up all of these, we will get an equivalent value today.

From the above calculation, we can know that the present value for option 2 will be equivalent to RM 557,970. This is higher than option 1, therefore we can conclude that based on 3% p.a. interest rate, Option 2 is the better option.

Scenario with 8% interest rate.

The decision will be different when the interest rate is 8%. From above table, the total present value will be RM 499,271 for option 2. This is lower that RM 500,000. Therefore, Option 1 is now the better option.

Reference for PV & FV Formula.

Which One Gives Better Return?

Effective Rate & Internal Rate of Return Applications for Everyone!

As promised in my previous post, I will share 2 simple methods (Effective Rate, and Internal Rate of Return) that we can use to determine the return of an investment. It can be performed by almost everyone and it is a free application for smart phone ~ (EZ) Financial Calculators.

Continue reading “Which One Gives Better Return?”

Where to put My Money?

Monetary Policy Committee of Bank Negara Malaysia’s reduced Overnight Policy Rate (OPR) by 50 basis points to 2.00% after meeting on 5th May 2020. (click here for BNM press release) With this announcement, interest rates for both borrowings and savings will be adjusted accordingly. For those of you with Fixed Deposit Savings may start to feel that it may not be viable to continue placing FDs with bank. So, what should you do?

Worry Not! You can expect a lot of advertisements and posts about investment opportunities everyday. You may have received calls from someone, you know or do not know, who offered you with investment schemes. Some may even offer you new career opportunities.

Continue reading “Where to put My Money?”

How to respond in Times of Uncertainty?

Imagine throwing a pebble into a still pond. How does the water respond? The answer is, totally appropriately to the force and mass of the input; then it returns to calm. It doesn’t overreact or under-react…

David Allen in Getting Things Done

What is happening?

Coronavirus COVID-19 pandemic is affecting almost every countries in the world. Social and economic activities are greatly affected. While we are fighting the virus, we are also facing economy challenges. Severe turbulence in the market with new data, news and stimulation packages, monetary decision by central banks all over the world and etc. are creating uncertainties among the investors and public. This situation will prompt many of us to make many instantaneous decisions daily.

Continue reading “How to respond in Times of Uncertainty?”