The Concept of Time Value of Money Is Important to Financial

question 53

Multiple Choice

The concept of time value of money is important to financial decision making because

• A) it emphasizes earning a return of interest on the money you invested.
• B) it recognizes that $1 today has more value than $1 received a year from now.
• C) it can be applied to future cash flows in order to compare different streams of income.
• D) All of these are correct.

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Definitions:

Call Provisions

Terms in a bond contract that allow the issuer to repurchase and retire the bond at a specified price before maturity, protecting against interest rate risk.

Bond Indenture

A legal contract between a bond issuer and a bondholder, detailing the terms of the bond such as the coupon rate, maturity date, and obligations of the issuer.

Call Provision

A clause in a bond or other fixed-income security that allows the issuer to repay the principal before the maturity date.

Sinking Fund

A savings fund into which an organization sets aside money over time, intended to pay off a debt or bond at its maturity or to meet a future capital expense.