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Articles on Trending Technologies
Technical articles with clear explanations and examples
How is multi-period compounding done?
We can start calculating multi-period compounding right from calculating effective interest rate (EIR).The effective interest rate is given by, EIR = {1+i/m}nxm - 1 ------------------ (1)Where, i is the nominal interest rate, n is the number of years, m is the number of compounding per year.Using equation 1, we get, Fn = A { (1+i/m)nxm - 1} / i/m ...............................(2)Equation 2 helps us to use the present value of an annuity in the case of a multi-period compounding. Here the discount rate will be i/m and the time horizon is (n × m).Let us consider an example of investment of ...
Read MoreHow do companies organize their finance functions?
For achieving success in cutthroat markets, efficient organizations streamline their finance functions in an organized manner. Since the financial objectives reflect in various reports that are handed over to stakeholders, a finance manager must be able to put forward financial information for the laymen as well.Companies need to organize their finance functions for a variety of other reasons as well. Some of these reasons include the profitability of the company. increasing shareholders' value and maximizing wealth. Whatever the reason of organizations, it is the duty of the finance manager to keep the process streamlined.Note − Companies organize the finance functions ...
Read MoreWhat is the role of a finance manager in raising funds and allocating funds?
Although the finance managers found limited access to decision-making in the 1950s, the situation has changed drastically nowadays. Now, a finance manager is the person in the key role to raise and allocate funds according to the company's needs.Raising FundsThe traditional view of financial management has dominated the managers to work within the limits set by the decision-makers in the corporate organization. The finance managers only got attention in the case of promotion, reorganization, expansion, and diversification. The financial managers were called upon to express their knowledge in order to raise the funds.Note − Modern organizations pay more attention and ...
Read MoreWhat are the differences between short-term and long-term finance functions or decisions?
Although both functions are related to finance, there are some distinctive differences between long and short-term financing decisions. Long-term decisions are made for more than a year while short-term decisions are yearly decisions. It is easier to understand when we compare some of the long and short-term decision examples.Note − There are differences between long-term and short-term financial decisions.Long-term DecisionsLong-term decisions often offer the strategy of the businesses. Some types of long term decisions include the following Capital Budgeting is an investment decision where long-term budgets are prepared by companies. There are mainly two considerations in capital budgeting −Evaluating the probable ...
Read MoreWhat is Risk-Return Trade-off?
It is the nature of financial functions that higher-risk investments offer more returns. Similarly, low-risk investments return less. For example, if you invest in shares, the risk is more there. However, the returns will be higher too in equities in comparison to a less risky investment such as government bonds. This relation between risk and return is popularly called the risk-return trade-off in finance.In the case of mutual funds, the funds are named according to the market cap of company equities, such as small-cap, mid-cap, and large cap funds. Here, if the fund deals with only small-cap, the funds' investments ...
Read MoreHow are Financial Goals related to a firm's mission and objective?
A company's objectives and mission affect all departments of a company, such as marketing, technology, and HR. Objectives and missions broadly state the aim of an organization and financial goals. Since the major aim of a company is to produce quality goods it is imperative that the finances provide the necessary funds required for producing the goods and/or services. In such a case the financial goals are related to the firm's mission and objective.The role of finance in an organization does not stop in merely supporting the production of goods. Finance is related to all other organizational functions. For example, ...
Read MoreHow would you differentiate Opportunity Cost of Capital from Required Rate of Return (RRR)?
In the calculation of Required Rate of Return (RRR), if the risks are comparable, then it is called the opportunity cost of capital. The equation for calculation of RRR is given by: RRR = Risk-Free Rate + Risk PremiumHere, risk-free rate refers to the time value and risk premium adjusts the risks. The individuals choosing an investment that will pay in the future there are some risks inherent in them. The managers usually invest in investment vehicles that offer more than their cost of capital.Note − The RRR is related to the time value of money.The cost of the capital ...
Read MoreWhat is meant by Time Preference or Time Value of Money?
Organizations and individuals usually prefer to receive money on an earlier date than receiving an equal sum on a later date. It is considered that the value of money goes through erosions with passing periods of time. That is why organizations try to receive payments as soon as possible.Note − Organizations seek to receive payments now than in the future if the amount is the same.Time Value of Money refers to this philosophy and considers the value of money received now to be superior to the same amount of money on a later date. It is based on three factors ...
Read MoreWhat are the differences between Objective and Decision Criteria?
While we discuss wealth maximization the concepts of objective and decision criteria must be differentiated. At the first sight, the two criteria look similar. However, there are some inherent differences between the two. Knowing the differences is important because the companies deal with these criteria day in and day out.What is Objective Criterion?The objective criterion is the aim or goal the company wants to achieve in the longer term. The objectives guide the overall operations and decision-making processes of the firm. Mission and vision are included in the objective criteria. The importance of objective criterion is the most for managers ...
Read MoreHow to divide the row values by row mean in data.table object in R?
To divide the row values by row mean in R’s data.table object, we can follow the below steps −First of all, create a data.table object.Then, use apply function to divide the data.table object row values by row mean.Create the data framelibrary(data.table) x
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