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Q. What is Qualities of Pay Back Method?
Qualities of Pay Back Method:-
(i) Simple: - The most important merit of this method is that it is simple to understand and easy to compute.
(ii) Suitable for Firms Suffering from Liquidity: - This method is very suitable for firms suffering from shortage of cash for the reason that emphasis in this method is on quick recovery of the original investment.
(iii)Appropriate in case of Uncertain Conditions: - This method is very appropriate where the long term outlook is extremely uncertain and risky.
(iv) Importance to Short-Term Earnings: - This method is useful for firms which lay more emphasis on short-term earnings rather than the long-term growth.
(v) Superior to ARR Method: - It is superior to ARR method for the reason that it is based on cash flow analysis.
Now that we have an understanding about price volatility characteristics of a bond, let us turn to the duration/convexity approach, which is an alternative
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