Time value of money Research Paper Example | Topics and Well Written Essays - 750 words

Time value of money - Research Paper Example integrity can settle for less return if he or she is certain about the offered return in a given period of beat. At times, when the company is highly reputed and has never defaulted in the past in its history investor lead oppose to accept passably less return for the reason of assured returns in a given time frame. Against this, if the companys history indicates that it does not pay in time or has defaulted in payments to its debtors then it will force us to ask for the higher return to ensure up the associated danger with our capital or delayed payments. Of course, it is subjective and based on the individual taste nevertheless, basic framework in applying the theory about risk and returns remain the same everywhere. Besides, other habitual parameters such as inflation, entertain rates in the market do influence about our close to settle for appropriate returns. For example, if inflation is ruling at 5 % per annum, any return l ess than that only when means that our money is depreciating. In the same scenario, if the yearly return received is six percent, it means that give the sack of inflation our real return is only 1 percent. Above concepts are being applied in answering the questions of this paper. Answer 1) Current inflation rate in U.S is about 2.25 percent and term interest rates for the deposit of one year can be taken as around 1 percent. If the vex belongs to Nvidia Corporation, the companys financials do not pose any near term threats so far the risk factor is considered. With simple thumb rule, I will not pay to a greater extent than $1850 for the bond of this company that will fetch me around $2,000 aft(prenominal) a year from this company. (Future value, FinanceProfessor.com) Answer 2. silver flow (maturity value) available in this case is $2,000 The time period is one year for which it is required to decide the present value, which is given as PV = CF * 1/ (1+r)t PV= 1,850 CF= 2,000 t =1, putting these values in the equation, it can be solved for r (discount rate), which will give us applicable discount rate. 1+r= CF/PV 1+r=2000/1850=1.08 or r=0.08 Hence discount rate for this bond is 8 percent. (Present Value, FinanceProfessor.com) Answer 3. As competitors to Nvidia, two companies selected are Siemens and AMD. Siemens is well established and financially very sound and deals in host of products. I would consider Siemens bonds highly liquid and secured. establish on the track record of Siemens, I would agree to buy bonds from Siemens by paying slightly higher price in comparison to Nvidia. There is absolutely no chance of Siemens impuissance on the redemption payments of bonds issued. All other things remaining the same, risk factor being nil, I would agree to buy these bonds by paying more in comparison to SLP Company Nvidia. In short, I will agree to slightly less than 8 percent of return while investing with Siemens. However, the same cannot be said for AMD as performance of the company is highly fluctuating in the market quarter after quarter. AMDs operations are in the limited field and the company certainly carries some risk of failing in its payments for the bond. To cover up my risk of losing the capital or getting the delayed payments, I would certainly look for higher returns than normal. It means that I need to buy the bonds of AMD at