Tutor profile: Daria V.
Subject: Corporate Finance
What is the time value of money?
A unit of a currency is worth more today than tomorrow (in a week, month etc). It is so because of inflation, that is, the rise of the level of prices for products. At a future date the prices can be higher and thus one will buy less products than today. For example, someone offers to give you a $1 today or tomorrow, opt for today. Today you can buy a chocolate bar, but tomorrow the price might rise and you will not have enough money to buy that chocolate bar. Again, if someone offers to give you a $1 today or tomorrow, opt for today. You then can lend money to another charging interest or open a bank account and earn interest, thus generating more money. So if you have $1 today, you can lend it to a friend and charge them interest, let’s say 10%. So in this case you will have $1.1 tomorrow (remember, initially if you agreed to accept $1 from someone at a later date (tomorrow) and not today, you would have had $1 and not $1.1 which you have now after you lent money to a friend). The same works when you open a savings bank account and the bank pays you an interest of 10%.
What is the difference between a shareholder/stockholder and a stakeholder?
A shareholder is a person or an entity which has invested money in a company by buying shares of that company. This entitles them to receive income (called dividends) from that company. This makes shareholders interested primarily in financial performance of a company. It is because the dividends are paid when the company has a good financial performance. A shareholder is also a stakeholder. A stakeholder is a person or an entity which has a "stake", or to put it simply, an interest in the performance of a company. It can be a financial interest (as it is the case with shareholders) or a non-financial interest. For example, employees want to work in a safe and clean working environment and that makes them interested in health and safety rules in place, and that makes them stakeholders. Further, customers are concerned with (or are interested in) quality of the goods they buy, and that makes them stakeholders too. To sum up, stakeholder is a broader concept. Shareholders are a one group of stakeholders because they have a financial interest in a company. However, there are more parties which have an interest in a company's performance and that makes them stakeholders.
What is the price elasticity of demand?
In simple terms (and disregarding the math for now), elasticity of demand is an indicator of how much the demand for the product changes when the price of that product changes. So, for example, when the price rises and demand falls greatly, then the demand for the product is elastic. Alternatively, when the price rises but the demand barely falls, then the demand is inelastic. Examples of the products whose demand is going to be inelastic include every day goods, such as milk or bread. We won’t stop eating bread or drink milk even if the price triples! However, we won’t buy a car if the price triples, and thus a car is an example of a product whose demand is elastic.
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