Chapter 5 discusses how interest rates are quoted in

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Unformatted text preview: rns. Chapter 5 discusses how interest rates are quoted in the market and how to handle interest rates that compound more frequently than once per year. We apply the Valuation Principle to demonstrate that the return required from an investment will depend on the rate of return of investments with maturity and risk similar to Chapter 4 NPV and the Time Value of Money Chapter 5 Interest Rates Chapter 6 Bonds the cash flows being valued. This observation leads to the important concept of the cost of capital of an investment decision. In Chapter 6, we demonstrate an application of the time value of money tools using interest rates: valuing the bonds issued by corporations and governments. 03_ch03_berk.indd 03_ch03_berk.indd 65 65 12/15/11 8:08 PM The Valuation Principle: The Foundation of Financial Decision Making 3 L E AR N I N G O BJEC T I V E S ◗ Identify the role of financial managers in decision making ◗ Recognize the role competitive markets play in determining the value of a good ◗ Understand the Valuation Principle and how it can be used to identify decisions that increase the value of the firm n o tation NPV net present value PV ◗ Assess the effect of interest rates on today’s value of future cash flows ◗ Use the net present value decision rule to make investment decisions ◗ Understand the Law of One Price present value r interest rate 66 03_ch03_berk...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.

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