Business Ethics Play an Important Role - Essay Example

Business ethics play an important role in various situations in financial management. Financial accounting and reporting is one of the key areas where ethics are extremely important.

Similarly, Satyam, an Indian IT firm was found guilty of forging account books by creating fictitious assets in a sister company.

The concept of the time value of money can be used to calculate the monthly installment to be paid for a mortgage for a given period. Similarly, if a person can’t pay more than a certain amount per month, the number of years of payment of the mortgage can be calculated using the time value of money.

The primary risk for investment in bonds is interest rates. Hence, in a rising interest rate scenario, bonds will give lower returns. Higher inflation also makes bonds less attractive. Other risks associated with bonds are the default risk of the issuer, lack of liquidity in the market, and provision of callback (Hofman, 2010).

Zero coupon bonds pay the entire interest at maturity unlike other bonds and generally give maximum yields. High-net-worth investors looking for long-term investments generally invest in these bonds. Banks and big corporations are interested in these bonds.

Risk is incorporated in capital budgeting either by using a higher discount rate or by requiring a higher annual return on the project. Systemic and unsystematic risks are included by using the Beta and standard deviation of the returns. Read More