Bond and Stock Valuation PPT

Bond and Stock Valuation PPT - 4-1Chapter 27...

Info iconThis preview shows pages 1–16. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 4-1Chapter 27 &28Bond and Stock ValuationnBondsnPreferred StocknCommon StocknSecurity Market Equilibrium4-2Value ==CF1(1+k)1+CF2(1+k)2....CFn(1+k)nHow can we value assets basedon expected future cashflows?0 12nValueCF1 CF2CFnnt=1CFt .(1+k)t4-3The discount rate k is the opportunity cost of capital and depends on:1) riskiness of cashflows2) general level of interest ratesHow is the discount rate determined?4-411201,00VB = $120 $1,000(1+kd)1 (1+kd)1Whats the value of a 1-year, 12%annual coupon bond if kd = 12%?= $107.14 + $892.8612%VB = ?+4-5Find the value of a 10 year12% annual coupon bond.1120 +100012 120 120 VBVB = $120 $120$1,000(1+kd)1 (1+kd)10 (1+kd)10+....++= $107.14 + ...+ $38.64 + $321.97= $1,000.4-6NI/YRPVPMTFVNPVFVI/YRPMTInputs 10 12 120 1,000Output -1,000The bond consists of a 10-year, 12%annuity of $120/year plus a $1,000lump sum at t = 10:PV annuity= $ 678.03PV maturity value =321.97PV Bond=$1,000.004-7What would the value of thebonds be if k = 15%?NPVFVI/YRPMTInputs 115120 1,000Output -973.911-year bond:4-8NPVFVI/YRPMTInputs 1015 120 1,000 Output-849.4410-year bond:When kd rises abovethe coupon rate, the bonds values fall below par, so they sell at a discount.4-9NPVFVI/YRPMTInputs 1 9120 1,000Output -1,027.62 What would the value of thebonds be if k = 9%?1 year bond4-1010-year bond:NPVFVI/YRPMTInputs 10 9120 1,000 Output -1,192.53 When kd falls belowthe coupon rate, thebonds values rise above par, so they sell at a premium. The longer the maturity,the larger the premium.4-11Value of 12% coupon bond over time:1,3081,1931,000849803Mkd = 12%kd = 9%kd = 15%30 20 10 Years to Maturity 4-12SummaryIf kd remains constant:nAt maturity, the value of any bond must equal its par value.nOver time, the value of a premium bond will decrease to its par value.nOver time, the value of a discount bond will increase to its par value.nA par value bond will stay at its par value.4-13121........What is the YTM on a 10 year 12%annual coupon $1,000 par bond that sells for $895.68?120120 1201,000PV1PV9PV10PVM...895.68 Find kd that works4-14Find kdINT(1+kd)1+INT(1+kd)2....INT+M(1+kd)nVB =NPVFVI/YRPMTInputs 10-895.68 120 1,000 Output 14.00 $895.68 = $120+ $120 + ... $120+$1000(1+kd)1 (1+kd)2(1+kd)104-15Find the YTM if price were $1,122.89....
View Full Document

This note was uploaded on 12/07/2009 for the course FIRE 312 taught by Professor Salandro during the Spring '09 term at VCU.

Page1 / 55

Bond and Stock Valuation PPT - 4-1Chapter 27...

This preview shows document pages 1 - 16. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online