question archive As we start using time value of money concepts in corporate finance applications, we can see the impact of time and interest rates on financial instruments (stocks & bonds)
As we start using time value of money concepts in corporate finance applications, we can see the impact of time and interest rates on financial instruments (stocks & bonds)
Subject:FinancePrice: Bought3
As we start using time value of money concepts in corporate finance applications, we can see the impact of time and interest rates on financial instruments (stocks & bonds). Discuss these concepts:
(1) Why is time such an important factor? Why is a bond with a 20 year maturity date more vulnerable (price changes) to changes in interest rates that a bond with a 1 year maturity date?
(2) Why is risk, corporate credit score and our own credit score, so important when we are borrowing money? Think about the interest rate on a car loan for a person with a low credit score (FICO score of 500) versus a person with a high credit score (FICO score 800)? Which person would receive a lower interest rate on a loan? Apply the same concept to a corporation selling bonds (borrowing money)?
