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Unformatted text preview: Time Value of Money - Bonds TUI University November 22, 2011 Time Value of Money - Bonds Issues concerning bonds, risks involved such as inflation, interest rates and the like correlate with the time value of money. Essentially, todays dollars is worth more than tomorrows dollar and an investor has the association of time preference of money. Time preference of money simply means that an investor can reinvest cash flow received early and earn additional money. Thus present value is an important concept of the financial management process. Based on the time value of money, present value equals the discounted interest rate of future cash flow. Hence the calculation would be Present value = Future value/(1+rate of interest)^duration (NetMBA Business Knowledge Center, 2002-2010). The Case of Visa As provided in the case that Visa has financial difficulties in one year, we are also considering such factors as inflation and interest rates. Therefore, I would pay approximately $1,800 taking into account my personal risk preferences and market conditions. Discount rate calculations are as follows: P=present value, F= Future value r= rate of interest n=duration / P=F/(1+r)^n...
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