FM-A1

UNIT I : CONCEPT OF TIME VALUE OF MONEY PRESENT VALUE

1. Cash inflows are called positive cash flows and cash out flows are called negative cash
flows.
2. Value of money depreciates or erodes over a period of time due to inflation.
3. The value of future cash flow further gets reduced Due to uncertainty of receipt of
future cash flow.
4.Discount is a rate at which present and future cash flows are traded off.
5. A higher discount leads to a lower present value of future cash flows.
6. If the preference for present consumption is weak then the person may settle for a
lower discount rate.
7. There are five types of cash flows 1) Simple cash flow 2) Annuity cash flow
3) Growing Annuities 4) Perpetuities 5) Growing Perpetuities.
8. Compounding is the process by which a present cash flow is converted in to its
expected future value.
9. To calculate present value, we Discount the expected payoff by the rate of return
offered by alternate investments.
10. The rate of return offered by alternate investments is called Discount Rate or Hurdle
Rate or Opportunity cost of capital.
11. Net Present Value is found by subtracting the required investment or initial out lay
from the present value or discounted value of future cash flow.
12. Most Investors avoid risk when they can do so without sacrificing return.
13. The effect of inflation reduces the purchasing power of the future cash flow.
14. Real Cash Flow = Nominal Cash Flow / (1 + Inflation Rate )
E.g. Incase of 25% inflation the value of Rs.1000/- = 1000 / 1 + 0. 25 = 800/15. Accept the investment that has a positive Net Present Value.
16. Accept the Investment that offers a Rate of Return in excess of their opportunity costs
of capital.
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17. Present value of a future cash flow decrease inversely with discount rate & period.
18. Future value increases in accordance with increase in Rate of return and
Compounding period.
19. The frequency of compounding affects both present value and future value of cash
flows.
20. An Annuity is a constant cash flow occurring at intervals of time.
21. A Console bond is a bond that has no maturity & pays a fixed coupon.

22. A growing perpetuity is a cash flow that is expected to grow at a constant rate forever.
23. Net Present Value = - Co + { C1 / (1 + r) }
24. Expected Future value of a present cash flow = Cash Flow ( 1 + r ) ^ t
25. Present value of a simple future cash flow = Cash Flow / (1 + r) ^ t .
26. The Discount Factor = 1 / (1 + r) ^ t
27 Notation used internationally for PV of an annuity is PV ( A, r, n )
28 Notation used internationally for FV of an annuity is FV ( A, r, n )
29. The effective annual rate = ( 1 + r ) ^ t 1 or (1 + (r / N)^t ) 1 )
N = Number of times compounding in a year
30. FV of end of period Annuity =
31. FV the Annuity at the beginning of the period =
32. PV of end of period Annuity = A {1- (1 / (1+r) ^ n) } / r
33 PV of the Annuity at the beginning of the period =
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UNIT II : SAMPLING METHODS, REPRESENTATION OF DATA ANALYSIS &
INTERPRETATION OF SAMPLE DATA HYPOTHESIS TESTING:
1. Time is a decisive factor which makes necessary to take business decisions on sample.
2. Population refers all items that have been chosen for study.
3. When Mean, Median, Mode and Standard Deviation describes a sample they are called
Statistics.
4. When Mean, Median, Mode and Standard Deviation describes a population they are
called Parameters.
5. Statistics use lower case of Roman letters and Parameters use Greek or Capital letters.
6. Samples are two types Random samples and Non- random samples. Random
samples are called Probability samples & Non Random samples are called Judgement
sample.
7. The rigorous statistical analysis which can be done with random or probability
samples can not be done with Judgement Samples.
8. Random sampling methods are 4 1) Simple Random Sampling 2) Systemic Random
Sampling 3) Stratified Random Sampling 4) Cluster Random Sampling.
9. Stratified sampling is appropriate when the population is already divided into groups of
different sizes.
10. We use Stratified sampling when each group has small variation within the itself but
there is wide variation between the groups.