In the last chapter we discussed the time value of money and explored the wonders of compound interest. We are now able to apply these concepts to determining the value of different securities. In particular, we are concerned with the valuation of the firm's long-term securities - bonds, preferred stock, and common stock (though the principles discussed apply to other securities as well). Valuation will, in fact, underlie much of the later development of the book. Because the major decisions of a company are all interrelated in their effect on valuation, we must understand how investors value the financial instruments of a company.