busmanag_hw13_keagle - Tom Keagle 70-101 Ramirez...

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Tom Keagle 70-101 – Ramirez HOMEWORK #13 Chapter 16 – Review 1,3,5 Analysis 7 1. The time value of money is the principle that invested money grows over time by earning interest or some other form of return. It stems from the principle of compound growth which means that the compounding interest is paid back to the investor over given periods of time. 3. The characteristics of corporate bonds include that the bondholder has no claim to ownership of the company and does not receive dividends. However, payments to the bondholder are priority over payments of dividends in a situation of financial distress. Each new bond has a bond indenture which spells out the bond issues specific terms, conditions, borrower's obligations and financial returns to the lenders. Each bond has a maturity date which is when the firm must repay the bond's face value to the lender. Short-term bonds mature in less than five years while 5-10 years are considered intermediate term and over 10 years is considered long term. Longer term bonds are usually considered riskier.
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