Saving for the Future Coursework Example | Topics and Well Written Essays - 1000 words

Saving for the Future - Coursework Example However, owing to the notion of time value of money, the buyer would be required to save an amount different from that of $25,000. Taking the 5 year interest rate of 0.78% (U.S Department of The Treasury, 2012), the saving required annually amounts to the future value of an annuity (ordinary) assuming that $125,000 will be required after 5 years. This amounts to: 125,000= C* {(1.0078^5)-1/0.0078} = $24,613.03 Where: C= unknown i= 0.78% n=5 This is based on the following formula: FV (annuity) = C * {[(1+i) ^n – 1] / i} (Brigham & Houston, 2011) Where: C = Cash flow per period i = interest rate n = number of payments Two factors highly influence the future value of the cash flows calculated today; firstly, the periods for which they are calculated and, secondly, the rates at which they are calculated (Brigham & Houston, 2011). In both cases, the future value of the savings today is directly related to the interest rate and period. Higher the interest rate or period at which cash flows are calculated, greater the amount of future value of the investments made at T=0 (Brigham & Houston, 2011). Furthermore, the fact that whether savings are made at the beginning or end of a particular period, as well as the number of compounding periods also matters (Brigham & Houston, 2011). ... However, if changes are made to the number of compounding periods such that the number of compounding periods is 12 instead of 1, the resultant savings would then be: (125,000 / 76.213)= $1,640.134 which is approximately $1,640 The total annual investment/savings would translate to: $24,613 x 5= $123,065 if compounded annually On the other hand, the net investment/savings for five years would be: $98,400 (1,640 x 12 x 5) if calculated using monthly compounding. The savings bear an annual opportunity cost of $24,665 Furthermore, it has been observed that the rate of interest is apparently low owing to the riskless nature of Treasury Bills (Brigham & Houston, 2011). This is based on the simple rule underlying financial theories that the rate of return is positively associated with the level of risk (Brigham & Houston, 2011). A higher risk translates to higher return and vice versa. As opposed to T-bills, if the savings are channelized into corporate bonds, they will reap a higher rate of return compared to T-bills because these bonds are riskier compared to T-bills both in terms of riskiness of principal and interest payment. If the investment in these corporate bonds was made on a rate that is compounded annually, the savings required in order to obtain $125,000 towards the end would be lower than the amount shown in initial calculations. Thus, the net effect would be that the investor will lose money by investing in T-bills rather than corporate bonds representing an opportunity cost. To sum up, there are two alternatives available to an individual investor in order to accumulate $125,000 at the end of the year: to invest in corporate bonds or to invest in T-bills. The option that investor chooses entirely depends on his/her attitudes towards risk (

Reflective commentary Assignment Example | Topics and Well Written Essays - 1000 words

Reflective commentary - Assignment Example Defining the substance of the study made it possible to undertake a focused study without going off-topic ‘(Hartley, 2010)’. The definition was followed by a further inquiry into the components of the council, with a focus on the parties that make up the council, how they are selected and the powers they wield. These components were better explained by the book titled The Foundations of EU Law by T. Hartley. This was an important step, since it broadens the study in a systematic manner. This is because, the study advances from the mere definition to understanding the components of the body and the powers held by the parties. Having understood the components of the EU council as a decision making body of the EU, it was relevant to understand how the decision making process is undertaken. This required some inquiry into the procedures of undertaking meetings, their venues and what the meetings entail. At this stage, the broad topic was narrowed down to engage in understand ing the specific details of the EU council meetings, who arranges them and how the agendas are raised ‘(Hartley, 2010)’. This is when the book titled Unlocking EU Law by T. Storey and C. Turner, became relevant, since it explained all the procedures of the meetings and the changes in venues at different times ‘(Storey & Turner, 2011)’. ... In studying the role of the EU council as a decision making body of the EU, I visited the Law Teacher website to obtain credible information. Additionally, reliable and relevant sources, which particularly address the EU council and its roles were consulted. Here, the second edition of the book by A. Kaczorowska, titled European Union Law proved worth, since it comprehensively addressed the EU council and its functions ‘(Kaczorowska, 2011)’. Therefore, the resources used were the ones directly addressing the decision making process of the EU, since they would discuss this topic widely and venture into finer details, compared to other sources which generally address the EU holistically. I used The Foundations of EU Law by T. Hartley, to gain the basis the EU council decision-making mandate ‘(Hartley, 2010)’. The process of selecting the resources for use entailed consulting both the old and the new version of such resources, since a combination of the old and the new resources could be more informing than dwelling on either version. I used the third edition of Unlocking EU Law by T. Storey and C. Turner to gain an insight on how the decision making mandate of the EU council has changed over time ‘(Storey & Turner, 2011)’. Additionally, sources of information that addressed the decision making role of the council both before and after the EU enlargement were consulted, since they could give systematic information regarding the changes in the roles of the council. Here, the book, EU Law by J. Steiner, became relevant for this purpose ‘(Steiner, 2012)’. Therefore, a range of resources were consulted, to compare and contrast the information obtained, and settle on the most promising details. The