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### Discount Rate, Yield to Maturity, Value of the Share, E/P Ratio and Ke

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**Discount Rate: -**It is the rate of return that investors expect from securities of comparable risk.

**Bonds or Debentures: -**Theseare debt instruments or securities. In case of abond/debenture the stream of cash flows consists of annual interest payments and repayment of principal. These flows are fixed and known.

**The Value of the Bond: -**Itcan be found by capitalising cash flows at a rate of return, which reflects their risk. The market interest rate or yield is used as the discount rate in case of bonds (or debentures). The basic formula for the bond value is as follows:

**Yield to Maturity: -**A bond’s yield to maturity or internal rate of return can be found by equating the present value of the bond’s cash outflows with its price in the above equation.

**Zero-Interest Bonds**(called zero-coupon bonds in USA) do not have explicit rate of interest. They are issued for a discounted price; their issue price is much less than the face value. Therefore, they are also called

**deep-discount bonds**. The …

### Time Value For Money, Risk Premimum, Interest Rate, Capital Recovery

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**Time Value for Money : -**Individual investors generally prefer possession of a given amount of cash now, rather than the same amount at some future time. This

*time preference for money*may arise because of (a) uncertainty of cash flows, (b) subjective preference for consumption, and (c) availability of investment opportunities. The last reason is the most sensible justification for the

*time value*

*of money*.

**Risk Premium: - Interest**

*rate*demanded, over and above the

*risk-free rate*as compensation for time, to account for the uncertainty of cash flows.

**Interest Rate or Time Preference Rate: - Rate**which gives money its value, and facilitates the comparison of cash flows occurring at different time periods.

**Required Interest Rate: - A**risk-premium rate is added to the risk- free time preference rate to derive

*required interest rate*from risky investments.

**Compounding: -**It means calculating future values of cash flows at a given interest rate at the end of a given period of time.

**Future Value (**

*F*) …

### Finance Functions

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**Finance Functions**The finance functions can be divided into three broad categories: (1) Investment decision, (2) Financing decision, (3) Dividend decision. In other words, the firm decides how much to invest in short-term and long-term assets and how to raise the required funds.

**Shareholders’ Wealth Maximisation (SWM):**In making financial decisions, the financial manager should try to increase the value of the stake of the shareholder in the firm. This is referred to as the principle of Shareholders’ Wealth Maximisation (SWM).

**Wealth**: Wealth is precisely defined as net present value and it accounts for time value of money and risk.

**Agency Problem and Agency Costs**: Shareholders and managers have the principal-agent relationship. In practice, there may arise conflict between the interests of shareholders and managers. This is referred to the agency problem and the associated costs are called agency costs. if any agency offer ownership rights to the manager in the form of stock options, …

### List of top MBA Schools in USA for the year 2017-2018 with tution fees

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