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Unformatted text preview: omorrow is $1 of saving or consumption today The Opportunity Cost of consuming today is saving today Why do people earn a return on their savings? By sacrificing consumption one can save Interest is compensation for consumption forgone today Discount Rate – Interest rate that indicates the Opportunity Cost of holding an Asset Bonds – debt instrument issued by a borrower that promises repayment of principal and interest at some date in the future (the Maturity Date) The Debenture contract states the terms – Principal Value, Interest Rate, Payment terms Issued to the public – not a bank loan Treasury interest is considered default risk free Use Treasuries with similar maturities Stock – Share of ownership in a company A claim on the firm’s future assets, present assets, and future net income Many es...
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