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The AMA Handbook of Financial Risk Management by John J. HAMPTON

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Chapter8Time Value of Money

A firm or nonprofit organization derives its financing from a number of sources. Funds are provided by suppliers, creditors, owners, and customers. Some funds have a direct cost, as is the case with a bank loan, where interest is charged. Some funds have an indirect cost, as with capital supplied by owners, who eventually expect a return on their investment. Some funds have no cost at all, such as when the organization delays payment to a supplier who does not charge interest or a late fee.

In this chapter, we calculate the rate of return on investments and the effective cost of borrowing. Techniques using the time value of money are covered for different financing or investment vehicles. The format of an electronic ...

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