Corporate Finance 6

Corporate Finance 6 - Security Valuation Wednesday 8:00 AM...

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Security Valuation Wednesday, September 22, 2010 8:00 AM Capital Markets Agents demand cash and supply claims to future cash flows Securities- forms of financial claims Real Return on a bond: inflation + return Ex. Inflation =2%, real return 10% on $5 5 x 1.02=5.1 5.1 5.1 X 1.1=5.61 (5.61-5)/5=12.2% nominal Use timelines to visualize cash flows Simple interest vs. compound interest FV= PV (1+i)^n (annual) Excel: NPER APR- Annual Percentage Rate= nominal or stated/quoted rate Ignores compounding Ie- 2% compounded quarterly=8%APR EAR=Effective annual rate= (1+ QAR/#comp periods)^periods -1 Continuous EAR= e^quoted rate -1 Security Valuation: Zero coupon bonds Pricing yield to mat Effect ann rate Sec val/coupon bonds Annuity Coupon bond price to yield mat Time val app: ammoritzed loans Time val appl: Annuity due Sec val stock Perpetuity Growing perpetuity Complex cash flow Coupon Bond Zero coupon bond pays holder principal or face value at maturity No interim payments(coupons)
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This note was uploaded on 05/23/2011 for the course BUSI 408 taught by Professor Croce during the Fall '08 term at UNC.

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Corporate Finance 6 - Security Valuation Wednesday 8:00 AM...

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