Commercial Paper: It is a short term unsecured promissory note issued by a
firm. The features are as follows.- The maturity period is about 180 days.
- It will be sold at a discount from its face value and redeemed at its face value.
Certificate of Deposit: It is a title to a negotiable time deposit with a commercial
bank with a interest rate.10.Mutual Fund Scheme: A mutual fund is a collective investment. Investor is a
Part- owner.
- Time Value of Money
11.1 The value of money changes with time. A Rupee today is more valuable than a
rupee at the end of the year, because (i) current consumption is preferable to
future consumption. (ii) Future value of the rupee depends on the expected
returns on investment (iii) the purchasing power of the rupee may go down
because of inflation.
11.2 Evaluation of cash flows at different points of time through the time value of
money is, therefore, required. The details of calculating the present value of
money has been dealt with in detail in Learning Unit 2.
12 Annuity: represents a stream of constant periodic payments or receipts.
- Perpetuity: Perpetuity is an annuity of infinite duration.
14.Bond: A bond is an instrument of debt issued by an organization. The
features of bonds are as follows :-
Par Value – is the value stated on the face of the bond.14.1 It carries a specific interest rate, which is also called coupon rate. It will have a
specific maturity period. The total return on bond will be calculated by using
following formula:
Current income + Price Change
Total Return = --------------------------------------
Initial Investment
14.2 Bonds are often risk free. Bond prices vary with interest rate. Bonds may be
subjected to default risk and inflation risk. Reinvestment rate may be lower than
expected. A bond with a call feature entitles the issuer to prematurely redeem a