Cost Effectiveness of an MBA Degree

A Master's Degree in Business Administration (MBA) can be worth a lot or a little depending on several factors. When MBA's were in their highest demand the degree was almost a ticket to well paying business jobs. Since the 1980's MBA programs are standard in many Universities and consequently the supply has increased. This does not mean a MBA is useless however; what it does mean is that as a prospective MBA candidate one has to be a little prudent.

With a MBA one can broaden one's horizons significantly. A Doctor might pursue a MBA's to better understand the administrative end of their field; Engineers and Computer Scientists may earn MBA's when considering branching out into small Businesses, Corporate employees possibly seek MBA's to assist in promotion etc. In addition to the career implications of MBA's is the knowledge of the world of Business which is pretty much unavoidable in a MBA program. For anyone who didn't know, Business is a big factor in what makes the World go round these days, so having knowledge of this is useful in and of itself.

In a MBA program one learns things like the time value of money, asset management, strategic marketing, brand value, organizational behavior, financial statement analysis, statistical analysis, entrepreneurship etc. The list is quite extensive as the degree programs can average about 60 credits which is double the course work of some degrees and about one third less than law degrees. The value of these courses also depends on how one applies the knowledge one learns in the degree. For example, if one invests time and money to learn how to build a car but never actually builds a car why learn to build a car? A non-MBA student might say, "why not if it's interesting"; a MBA student who has learned his or her stuff would say that is a wasted investment or net loss scenario. One thing that a MBA will teach is how to value money and that is valuable too.

The value of the school and the value of the individual

How one is situated and which school one attends can also influence the value of a MBA. A MBA from Wharton is prized but not necessarily valuable depending on how it's used, while a degree from an accredited 3rd tier school will teach essentially the same information, it may take someone quite high and therefore be quite valuable if the individual knows how to use it. Thus, although all MBA's are not always considered equal in rank and therefore 'value', neither are all recipients of MBA's. In other words value can be found in many degrees, if it is turned into something of greater value.

Short run versus long run value

In the long run, a MBA has more potential value than in the short term, as MBA's do incur opportunity cost and expense when pursued. Then, after graduating one has to generally either get a promotion, increased in income, find a career or start a business for the degree to pay off. That takes more time, energy and investment. So naturally, the short term implications are less favorable than the long term.

Face value

Lastly, a MBA may be free if one has an employer, scholarship or college fund pay for it. In this case, the value of the degree is either $0.00 or any positive dollar value above that as no money from the candidates personal funds are used in paying for the degree. In this instance, the real tangible book value of the degree is good, but sometimes it may be negative depending on the cost of the tuition and the financial situation of the individual pursuing the degree. What's more, if student loans are used to pay for the degree they could negatively amortize if the student is unable to make interest payments on the loans after graduation.

So what we have seen here is that MBA's have a lot of potential value and sometimes immediate value depending on how they're financed. Since the 1980's MBA's have become more popular and less in demand thereby reducing their cultural value or value to the workforce however many opportunities still exist for MBA students for the simple reason the World is comprised of so many business'. A MBA can equip an individual with highly useful information that is not unnecessary in any commercial environment and part of the value of that knowledge is multiplied by the value of the individuals ability to use that know how.

Why bonds fluctuate in value

Bonds are more than just loans to the Government and corporations they are often transferable securities that are traded through auctions, or through broker assisted deals. A bond can either trade at face value, at a premium, or at a discount or below face value. Bonds typically pay interest rates between 1-7% depending on the type of bond and these bonds can be traded on exchanges at different prices than their face value after original purchase.

Market making, interest rates and bond grading

Since many bonds are transferable, buyers and sellers of the bonds bid and ask for different prices. When a significant of these prices are satisfied, the price of the bonds either moves up or down. The exchange of bonds is managed through a market maker system in which the prices organizations and investors enter are tallied and arranged through a computerized system. If there are more buy requests satisfied these can have the affect of pushing prices upward and vice versa. As market conditions continue to change, the price of the bond is re-negotiated through the exchange system.

Other conditions affecting bond price include either corporate or Governmental adjustments to interest rates. For example, over time, an variable rate inflation bond may change by 1-2% to adjust for inflation. Also, the demand for higher paying yield bonds may be high causing a decrease in the value of bonds with lower interest rates.

Another factor that can influence a bond price is a corporate bond downgrade. If a bond watchdog such as Standard & Poors determines a company's credibility has declined, the bond grade of their bonds usually decline. These price drivers are summarized below:

• Market Making and Market activity: Trading on exchange is managed by a market maker and as prices investors are willing to pay or sell at change so to do bond prices.

• Interest Rate Adjustments: When the Government or corporations adjust their interest rates, changes in the price of pre-existing bonds occur.

• Bond Grade Down or Upgrade: If a Government or Corporation's credibility declines, often the bond quality also declines potentially affecting price.

An example of an interest rate driven bond price change is given as follows to illustrate features of the bond pricing mechanism. During the course of exchange in bond markets the U.S. Treasury or other Foreign Treasury may adjust the treasury yield which directly affects interest rates.

If the new rate is lower than the old rate, old Bonds will increase in value because they have better interest payments. For example, assuming an exact market adjustment to new interest rates, a 30 year Bond with a fixed rate of 4.5% valued at $1000.00 with 25, $45.00 interest payments remaining on Monday, will be valued at $1,164 on Tuesday because new rates are now 3.5%.

What to look for when purchasing bonds

As we have seen, bonds trade after they have been issued and the Treasury changes interest rates. This causes the price of the bonds to fluctuate. When actively traded in markets, prices can change further. Predicting these changes before they occur can mean the difference between predicting a price movement and not predicting a price movement. Some helpful indicators of potential price movement in bonds are as follows:

• Gross Domestic Product (GDP) Trends: If an economy is stumbling or slowing via slowing GDP, bonds may become more attractive to investors seeking more stable returns. This can cause an increase in the demand for bonds and consequently a rise in prices.

• Inflation Statistics: Inflation values such as the Core price index(CPI) and producer price index (PPI) can mean an impending drop in interest rates. If Bond rates decline, the value of old bonds rise.

• Liquidity Shifts: Big money moves and flows in and out of various markets. By tracking the flow of this money one can also track underlying demands and supply. These changes in supply and demand can affect bond prices.