Finance Questions Essay Example | Topics and Well Written Essays - 250 words

Finance Questions - Essay Example Enron established several limited liability special purpose entities which kept inflating its stock price untill the scandal was discovered. Similarly, Satyam, an Indian IT firm was found guilty of forging account books by creating fictitious assets in a sister company. 3. The concept of time value of money can be used to calculate the monthly installment to be paid for a mortgage for a given time period. Similarly, if a person can’t pay more than a certain amount per month, the number of years of payment of mortgage can be calculated using the time value of money. 4. The primary risk for investment in bonds in interest rates. Hence, in a rising interest rate scenario, bonds will give lower returns. Higher inflation also makes bonds less attractive. Other risks associated with bonds are default risk of the issuer, lack of liquidity in the market and provision of call back (Hofman, 2010). 5. Zero coupon bonds pay the entire interest at maturity unlike other bonds and generally give maximum yields. High net worth investors looking for long term investments generally invest in these bonds. Banks and big corporations are interested in these bonds. 6. Risk is incorporated in capital budgeting by either by using a higher discount rate or by requiring a higher annual return on the project. Systemic and unsystemic risks are included by using Beta and standard deviation of the returns. Hofman, Julian. 2010. Bond risks and rewards. Retrieved online 07 February, 2012 from