财务管理债券估值Chapter.ppt

Other types (features) of bonds Convertible bond（可转换债券） – may be exchanged for common stock of the firm, at the holder’s option. Warrant （附认股权证的债券）– long-term option to buy a stated number of shares of common stock at a specified price. Putable bond(可卖出债券) – allows holder to sell the bond back to the company prior to maturity. Income bond （收益债券）– pays interest only when interest is earned by the firm. Indexed bond （指数债券）– interest rate paid is based upon the rate of inflation. Yield to CallExample Henderson Company bonds currently sell for $1,275. These bonds can be called in five years at a call price of $1,120 and pay an annual coupon of $120. What is their yield to call? What is interest rate (or price) risk? Interest rate risk is the concern that rising kd will cause the value of a bond to fall. % change 1 yr kd 10yr % change +4.8% $1,048 5% $1,386 +38.6% $1,000 10% $1,000 -4.4% $956 15% $749 -25.1% The 10-year bond is more sensitive to interest rate changes, and hence has more interest rate risk. What is reinvestment rate risk? Reinvestment rate risk is the concern that kd will fall, and future CFs will have to be reinvested at lower rates, hence reducing income. EXAMPLE: Suppose you just won $500,000 playing the lottery. You intend to invest the money and live off the interest. Reinvestment rate risk  example You may invest in either a 10-year bond or a series of ten 1-year bonds. Both 10-year and 1-year bonds currently yield 10%. If you choose the 1-year bond strategy: After Year 1, you receive $50,000 in income and have $500,000 to reinvest. But, if 1-year rates fall to 3%, your annual income would fall to $15,000. If you choose the 10-year bond strategy: You can lock in a 10% interest rate, and $50,000 annual income. Default risk If an issuer defaults, investors receive less than the promised return. Therefore, the expected return on corporate and municipal bond