Foundations of Finance

Those who are not familiar with business related terms may hear the term ‘bootstrapping’ and immediately think of the Bootstrap Bill from Pirates of the Caribbean. While some may consider bootstrapping a pirate like act, it is actually a common way for startup businesses to finance their expenses.

Bootstrapping is the process of tapping all of your possible resources in order to finance moving your business to the next step. There are many places from which new entrepreneurs can find money.  Often some of the bootstrapping money comes from personal savings and home-equity loans. In other words, most of these entrepreneurs finance their startup company themselves.

Studies have found that in general, entrepreneurs spend about $70,000 in order to start a business. It is incredible to find out that most of this money is paid by the entrepreneur themselves, through bootstrapping.

When you are considering investing, it is important to consider investing in bonds. To make sure you are selecting a good bond to invest in, you will need to go through a process called bond valuation. This is the process that helps you know what a fair price is for a particular bond. The value of a bond in simple terms is that you take the expected cash flows of a bond and discount them to the present. You must use a discount rate to do this. In reality, it is a fairly complicated equation that involves several different factors, but is it still solvable. It is important to know what a fair bond price is before you invest in it so it is important to become familiar with bond valuation.

Time Value of Money (TVM) is one of the most important concepts to understand if you are going to go into financial management. It is used when you are evaluating various investment opportunities, loans, mortgages, leases, savings, and annuities. TVM is a concept that deals with inflation and the depreciation of the dollar over time. This means that the one dollar you have today, will be worth less in the future. It also refers to the fact that money is worth more now, because you can invest it. When you invest money, you will earn interest on it. However, it would not be worth more in the future because you would not have the time with which to invest it.