Time Value of Money and Bond Valuation

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Examine the concept of time value of money in relation to corporate managers. Propose two (2) methods in which time value of money can help corporate managers in general. The time valuation of money is the idea that money available now could be worth more than the same amount in the future, because that current money has the possibility of earning money in the future. Think if the expression, “It takes money to make money!” If you are guaranteed to have $100.00 now or $100.00 in 3 years, you would probably take the money now. However, the $100.00 you could have now can be utilized to make even more money in the future through investing. This concept is very important in the business world as corporations are always looking to…show more content…
Cons * Corporations often use sinking funds to purchase back bonds, thus shorting the length of interest payments for the bondholder/investor, which losses potential money. * Companies also have the ability to purchase back bonds at a discount or par value, which is less than market value. So in essence, companies wait for interest rates go down, which in effect increases the value of the bond. * Creates a lot of ambiguity amongst investors. It becomes of game of beat the Interest rate clock, in that you are uncertain as to when your bonds are going to be purchased back from the company, thus never knowing the duration of your investment and the extent of your interest payments/profit. Brigham, Ehrhardt. Financial Management: Theory & Practice, 14th Edition. Cengage Learning, 2014. VitalBook file. Cartther, S. (2016). Investopedia, Understanding The Time Value Of Money. Retrieved from http://www.investopedia.com/articles/03/082703.asp Unknown (2016) Pros and Cons of
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