VALUE BOND AND STOCKS

Value Bond and Stocks



Value Bond and Stocks

1.Would you prefer to have $100 today or $100 one year from now? Why?

I would prefer to have $100 today because as time passes the value for the money decreases and what you can buy now from $100 you cannot buy after a year due to impact of inflation and other economic factors. So, the value of $100 is greater today as compare to 1 year after.

2.How can compounding help build wealth over time?

Compounding build wealth over time as in compounding what you earn or what is the return of your initial wealth adds to the initial wealth and your wealth increases time to time and returns increases in terms of Dollars.

3.How can compounding help increase debt over time?

Compounding can increase debt over time. When wealth increases through compounding the company can have more debt as it has more wealth show the lender to have more loans and on the other side company can also issue more shares on the basis of its wealth, the more the wealth more will be the capacity to issue shares.

4.Based on your responses to questions 2 and 3, how can compounding both build wealth and increase debt? Is compounding a power or a curse?

As discussed in answer of question 2 and 3 the compounding can increase both wealth and debt as the company will be able to issue more shares in market, able to apply for more loan from bank or financial institution. Compounding will allows the company to reinvest the return from initial investment that will increase the wealth and returns both.

"What does a call provision [call feature] allow [bond] issuers to do, and why would they do it?" (Cornett, Adair, and Nofsinger, 2012, p. 146).

A call provision on a bond issue allows the issuer to pay off the bond debt early at a cost of the principal plus any call premium. Most of the time a bond issuer is called, it is because interest rates have substantially declined in the economy. The issuer calls the existing bonds and issues new bonds at the lower interest rate. This reduces the interest payments the issuer must pay each year.

"Provide the definitions of a discount bond and premium bond. Give examples." (Cornett, Adair, and Nofsinger, 2012, p. 146).

A discount bond is simply a bond that is selling below its par value. It would be quoted at a price that is less than 100 percent of par, like 99.05. A premium bond is a bond selling above its par value. Its price will be quoted as over 100 percent of par value, like 101.15. A bond becomes a discount bond when market interest rates rise above the bond's coupon rate. A bond becomes a premium bond when market interest rates fall below the bond's coupon rate.

"Describe the differences in interest payments and bond prices between a 5 percent coupon bond and a zero coupon bond." (Cornett, Adair, and Nofsinger, 2012, ...