Assignment on Bank

7/29/2019 Assignment on Bank

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Table Of Content

Particulars Page Number

Abstract 01

Introduction 02

Problem Description 03

Problem investigation&Analysis 04

Recommendation &Findings 09

Conclusion 11


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Abstract

Now a days, Bank is the most safer place for the people to invest their income. It

enables the people to earn profit/interest with out taking any risk. Banks offer us various

types of scheme, in this report we just analyze two schemes Term Savings & Annuity

Savings.For term savings we have converted the present value into Future value.For annuity

savings we have calculated the interest rate and justified the informations provided by the

Banks. We use numerical method for all calculations.


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Introduction

We collect our raw materials from the following Banks:

i) Dutch Bangla Bank Ltd.

ii) Mutual Trust Bank Ltd.

iii) Mercantile Bank Ltd.

The interest rates given by the banks for term savings differ from one another. We

have converted the present value into future value for every Bank.

The interest rates given by the banks for annuity savings vary from one another. For

Mercantile Bank we have calculated the interest rate. For DBBL and MTB we have justified

the information provided by the banks.

The purpose of the report is to identify the missing information from the data provided

by the bank. We also verify the information provided by the bank.

Here we just investigate three commercial banks. In case of calculation we just use

three digit after the point.

Here

FV=Future value

PV=Present Value

MTB=Mutual Trust Bank

DBBL=Dutch Bangla Bank Limited


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Problem Description

After investing two savings scheme of the three commercial banks we have found

several informations missing

Those informations are-

For DBBL:

i) Future value for fixed deposit (Estimating the PV and time period)

For MTB:

i) Future value for fixed deposit (Estimating the PV and time period)

For Mercantile Bank:

i) Interest rate of for annuity savings

ii) Future value for fixed deposit (Estimating the PV and time period)


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Problem Investigation & Analysis

For Term Savings

Dutch Bangla Bank Ltd.:

The interest rate offered by the DBBL is 7.00%. If a saver invests 1,00,000 for 5 years than

future value:

We know FV= PV(1+i)n

= 1,00,000 (1+.07)5

= 140,255

PV = 1,00,000

i = 7.00%

n = 1

Hence, the person will get Tk. 140,255 after five years.


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Mutual Trust Bank Ltd.:

This Bank offers us separate interest rate for separate time period. If a saver invests

for 6 month, he will get interest @8.25%. He will get 8.50% interest for 3 months and 8.50%

for 1 or more than one year.

If a saver invests 1,00,000 for five years than the Future value:

FV = PV (1+i)n

= 1,00,000 (1+.085)5

= 150,366

Hence, the person will get 150,366 for after five year.

Calculation of Effective rate for 3 months, where interest rate is 8.50

Effective Rate = 1

m

m

nomi

1

+

8.77%

1

4

4

0.0851

=

+=

Calculation of Effective rate for 6 months, where interest rate in 8.25%

Effective rate 1

m

m

nomi

1

+=

8.42%

12

0.08251

2

=

+=


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Mercantile Bank Ltd.:

This bank offers us different interest rates for different time periods. They offer 7%

for 1 month, 8.5% for 3, 6, 12 months or more.

If a saver invests 1,00,000 for five years.Than the future value:

FV = pv (1+i)n

= 1,00,000 (1+.085)5

= 1,50,366

Calculation of Effective rate for 6 month where interest rate in 8.50%

Effective rate = 1

m

mnomi1

+

8.77%

1

4

4

0.0851

=

+=

Calculation of Effective rate for 6 month where interest rate in 8.50%

Effective rate = 1m

m

nomi1

+

8.68%

12

0.0851

2

=

+=


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For Annuity Savings

Dutch Bangla Bank Ltd.:

This bank offers us 7.00% interest. If the monthly payment is 500 at an interest rate of

7.00% after 5 years the future value given by the bank is Tk. 35,910.

To justify the amount the calculation will be:

FV ( )i1i

1i)(1PMT

n

+

+=

36,005

12

.07

1

12

0.07

112

0.071

500

125

=

+

+

=

Mutual Trust Bank:

This bank offers us 9.25% interest. If the monthly payment is 500 at an interest rate of

9.25% after 5 years the future value mentioned by the bank is 38.080.

To justify the amount the calculation will be:

FV( )

( )i1i

1i1PMT

n

+

+=

38,253

31.00770833.007708333.58522532500

12

.09251

12

.0925

112

.09251

500

125

=

=

+

+

=


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Mercantile Bank Ltd.:

If one person invests Tk. 500 monthly for 5 years he will get Tk. 38,250 at the time of

maturity.

Now we have to calculate the interest rate.

If the interest rate is 9% then the person will get:

FV( )

( )i1i

1i1PMT

n

+

+

=

37,995

12

0.091

12

0.09

112

0.091

500

125

=

+

+

=

If the interest is 9.25% then the person will get

FV( )

( )i1i

1i1PMT

n

+

+

=

253,83

12

0.09251

12

0.0925

1

12

0.09251

500

125

=

+

+

=

So the interest rate for Mercantile Bank is 9.25%.


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Recommendation and Findings

Comparison of FV for term Savings

Nominal Interest Rate

Name of Bank PV Interest Rate FV

Dutch Bangla Bank Ltd. 1,00,000 7.00% 140,255

Mutual Trust Bank Ltd. 1,00,000 8.50% 150,366

Mercantile Bank Ltd. 1,00,000 8.50% 150,366

Here we see Mutual Trust Bank and Mercantile Bank are preferable than Dutch

Bangla Bank as their interest rate and FV are greater than Dutch Bangla Bank Ltd.

Effective Interest Rate

Name of Bank Quarterly Semi annually

Mutual Trust Bank Ltd. 8.77% 8.42%

Mercantile Bank Ltd. 8.77% 8.68%

Note: DBBL does not use effective interest rate.

From the above table we identify that for quarterly compounded interest rate MTB

and Mercantile Bank offer same rate. But for semi annually compounded interest rate

Mercantile Bank offers greater interest rate than the Mutual Trust Bank.


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Comparison of Interest Rate for annuity savings among the Banks:

Name of Bank Monthly

Payment

Interest Rate FV for 5 year

Dutch Bangla Bank Ltd. 500 7.00% 36,005

Mutual Trust Bank Ltd. 500 9.25% 38,253

Mercantile Bank Ltd. 500 9.25% 38,253

Here we find MTB and Mercantile Bank offer us same interest rate which is greater

than the interest rate of Dutch Bangla Bank Ltd. So we prefer Mutual Trust Bank Ltd. and

Mercantile Bank Ltd. equally. The amount given by the Bank is slightly different from our

calculation. Such as-

Name of Bank Amount given

by the bank

Amount found

by our

calculation

Difference

Dutch Bangla Bank Ltd. 35,910 36,005 95

Mutual Trust Bank Ltd. 38,080 38,253 173

Mercantile Bank Ltd. 38,250 38,253 3


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Conclusion

From our investigation we observe that different banks offer different interest

rate on deposited money both for term savings and annuity savings. They use various

mechanism to attract the client. The people, who dont know how to calculate their

real benefit, sometimes make wrong decision. But its our responsibility to verify the

reality of different schemes provided by the Bank. So that we can get the maximum

benefit from our investment


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University of Dhaka

Department of Accounting & Information Systems

BBA Program

Course: Financial Management-1 (2104)

Submitted to:

Md. Safayat Hossain

Lecturer

Dept. of Accounting & Information Systems

University of Dhaka

We are:

1. Prashanta Saha 15046

2. Khondokar Abdullah Al Mahmud 150543. Arifa Akter 15016

4. Mariam Rabeya 15062

5. Jannat Ara Alvee 15004

Date of Submission: April 10, 2010


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An Investigation of Different Savings

Schemes of the Commercial Bank of

Bangladesh

Documents

Assignment on Bank