Suppose That You Just Attended a Lecture on Time Value

question 28

Essay

Suppose that you just attended a lecture on Time Value of Money. On your way home, you stopped in to get a cup of coffee. One of your classmates, who missed the lecture, joined you for coffee and asked you to explain to her the key concepts of time value of money and how you could use it to solve some of practical financial problems. What would you tell her?

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Definitions:

Straight-Debt Value

This refers to the value of a company's bonds or debt if no conversion option exists, viewed as traditional fixed-income securities.

Convertible Bonds

Bonds that can be converted into a predetermined amount of the issuing company's shares, usually at the discretion of the bondholder.

Par Value

The face value or nominal value of a stock or bond, set by the issuing company.

Credit Derivatives

Financial instruments used to manage exposure to credit risk by transferring it from one party to another without transferring the underlying assets.