Money Banking and Finance: NPV, IRR, Yield Curve, Financial Intermediaries, Monetary Policies

APC312 Money
Banking and Finance

Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
I) Calculation of NPV..................................................................................................................3
II) Calculation of IRR..................................................................................................................3
III) Recommendation...................................................................................................................3
PART B...........................................................................................................................................4
Explain how Yield to maturity is used to calculate the Yield Curve and also explain why is
calculated.....................................................................................................................................4
PART C...........................................................................................................................................5
Analyse the statement ‘Financial Intermediaries are vital to well- functioning financial
system.’........................................................................................................................................5
PART D...........................................................................................................................................8
Discuss the time lag between the application of instruments or tool of monetary policies and
also explain the achievement of the ultimate goals.....................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
APPENDIX....................................................................................................................................12

INTRODUCTION
Finance refers to the actions that are taken by a business or an individual which are
associated with the management of the financial funds. Any business needs financial
funds to strategically manage the different operations related to the business. Banking
refers to activities which are taken up by the banks in an economy which helps in the
mobility of the financial funds of the people (Hamadi, . and Awdeh, ., 2020). Banking
acts as a bridge between the lenders and the borrowers of the financial funds. The
following report highlights the calculation of net present values, IRR following a
recommendation about the project. The YTM concept of IRR is also discussed. The
discussion related to the financial intermediaries is present following the factors which
determine the monetary transmission in an economy.
PART A
I) Calculation of NPV
The NPV for the project is £ 2,848,000
Note: Calculations are shown in Appendix
II) Calculation of IRR
The calculated IRR rate is 18.44%
Note: Calculations are shown in Appendix
III) Recommendation
 The NPV shows the current values of the future cash flows from the project. The NPV
for the project is £ 2,848,000 which is positive for the business. The project is able to
earn 28 lacs of profit from the future years which makes the project a viable option for
the business (Zwass, , 2017).
 The IRR from the business project is 18.44. any project is considered a viable option if
the IRR of the project is higher. The IRR of the project makes the project more viable.

PART B
Explain how Yield to maturity is used to calculate the Yield Curve and also explain why is
calculated.
Internal Rate of Return for a project or business is determined by considering discounting
factor. This method is used to check the viability and feasibility. A higher rate of IRR is
considered to be good to accept a project. It shows that business will be able to earn a significant
amount of profit by selecting the project. Higher IRR is considered to be good for a project.
Yield to maturity is related with the investor in which investor themselves calculate the amount
of desired profit which they want to earn in future from their investment. YTM is a tool which
considers interest and capital gain/loss in determining the income derived from the project
(Haseeb, 2018).
YTM is a total sum which an individual will receive on the maturity of bonds. It is
basically a long term bond on which rate of return is calculated on yearly basis. In other terms, it
is the IRR of an investment as it is the final value after the maturity of the bond, all the payments
are to be on time and reinvested on the same interest rate. YTM is generally a Internal Rate of
return if the bonds are held till their maturity date. It is a complicated process to ascertain the
interest or coupon because it considers payments that are reinvested at the same rate as of the
bond (Wilson, , Wong, and Toms, eds., 2020).
Yield to Maturity divides the actual cash with the market price of the bonds to determine
the amount of money that the investor can realise from the investment made. It a price that the
investor will receive on future date by investing a sum at present. IRR is best way to calculate
the YTM and there is an alternate way of calculating yield to maturity,
YTM = Interest + (Redeemable value – Current Market Price) / N
(Current Market Price + Redeemable Value) / 2
From the above formula only estimated YTM is calculated and not the actual YTM. The amount
is calculated by using trial and error method in IRR method. The amount predicted on the
securities equals the amount of current value of the bond, the value of YTM is correct (Carlin,
and Lokanan, 2018).
Yield Curve is graphical representation of interest payment of the amount invested by the
investor, until they mature. It also includes the maturity value that the stakeholder will receive at
the time of maturity. If the amount received by the investor fluctuate up or down, then it can be