Thread: Time Value of Money BUS501.90: Eco of Acct/Fin[MOD6 ONLINE: Using TMCC security at the beginning of chapter 5 in the Ross text respond to the following:
a) Why would TMCC be willing to accept such a small amount today in exchange for a promise to repay about four times that amount in the future?
b) TMCC has the right to buy back the securities on the anniversary date at a price established when the securities where issued (this feature is a term of this particular deal). What impact does this feature have on the desirability of this security as an investment?
c) Would you be willing to pay $24,099 today in exchange for $100,000 in 30 years? What would be the key considerations in answering yes or no? Would your answer depend on who is making the promise to pay?
d) Suppose that when TMCC offered the security for $24,099, the US Treasury had offered an essentially identical security. Do you think it would have had a higher or lower price? Why?
e) The TMCC security is bought and sold on the New York Stock Exchange. If you looked at the price today, do you think the price would exceed the $24,099 original price? Why? If you looked in the year 2019, do you think the price would be higher or lower than today's price? Why?