Case Study Of Bizweek Online Services

2278 words - 10 pages

Throughout the following report a series of questions would be answered arising from the case study of ‘Bizweek Online Services’. Whilst applying various techniques such as present value, future value, annuities and securities valuation (shares and bonds) which are an integral part of an investment decision making process. While using these kinds of techniques investors can compare cash flows of each Investment opportunities. Thereby, selecting the best option suitable to him or her.

Future value of a retirement savings

Across the globe retirement funds are a key financial element amounting at a staggering US$20 trillion worldwide in assets according to “The Economist” (The Economist, 2014).according to the data that was provided the query is to determine future value of a superannuation account or in other words the time value of money.

Average age 44
Average retirement age 64
Number of times compounded(n) 20
Handout amount (PV) $10,000.00
Annual rate of return(i) 6%
Future value (FV) ?

FV= PV├ (1 + i┤)^n
FV= 10^' 000.00├ (1 + 0.06┤)^20
FV=$ 32,071.35

According to the given scenario government has proposed a handout of $10,000 to current full time workers. Given that their average retirement age is 64 and the current average age of fulltime employees being 44 years. On average a full time employee at retirement would have a balance of $32,071.35 given a 6% rate of return per annum (Petty, 2012).
In real life situation the time value of money decreases due to inflation. However explanation of financial theory inflation is assumed as constant.

Investing in share market
As an alternative to the above scenario; if the same amount ($ 10,000,000) of money had been invested in share market while expecting a projected average return of 12%p.a the data can be inserted to the same formula to get the Future value of return on shares.

Number of times compounded(n) 20
Handout amount (PV) $10,000.00
Annual rate of return(i) 12%
Future value (FV) ?

FV= PV├ (1 + i┤)^n
FV= 10,000├ (1 + 0.12┤)^20
FV=$ 96,462.93

A fulltime worker would have $ 96,462.93 at the end of 20 years as his retirement savings. Judging by the equation the only factor that changed was the interest, hence 50% increase in interest has brought $ 64391.58 more savings in the 20 year period. Therefore we can assume greater the interest greater the return but there is a higher risk involved in investing in share market than in savings account due to market fluctuations.

Advantages and disadvantages of investing in banks vs share market

Shares offer dividend and capitals gains on investment and offer numerous benefits over a banks when it comes to investment opportunities. Due to equity price appreciation investing in shares normally offer higher return than Inflation rate whereas, commercial banks interest is rate below them. Another benefit of holding shares is that benefit of dividend Imputation, since corporations have...

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