Running head: TIME VALUE OF MONEY PAPER
Time Value of Money Paper
Time Value of Money Paper
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Bonds
Bonds are one of the investment avenues which individuals, corporations, and financial institutions use to balance their investment portfolio. Bonds usually provide a predictable rate of return on investment and repayment of the initial principal amount.
When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency, or other entity known as the issuer and in return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it "matures", or comes due. (Investing in Bonds, 2005)
Investments are made either to preserve capital funds, increase capital funds, or used as an avenue to receive dependable income from interest payments. "There are a number of key variables to look at when investing in bonds: the bond's maturity, redemption features, credit quality, interest rate, price, yield, and tax status." (Investing in Bonds, 2005) Depending on the investors end state goals will determine weather investing in bonds is the correct choice.
There are risks associated with the bond market which every buyer of bonds has to be cautious of. Inflation causes the value of money received in the future to be worth less than the value is worth today. Investors who rely on the bond interest to pay off future debt may come up short due to inflation, which drives down the value of the future purchasing power of the interest. There are securities however, which combat the risks associated with an increase in inflation called Treasury Inflation Protection Securities wh ...