CorporateFinanceNetPresentValue幻灯片.pptVIP

4.6 Summary and Conclusions (continued) We presented four simplifying formulae: How do you get to Carnegie Hall? Practice, practice, practice. It’s easy to watch Olympic gymnasts and convince yourself that you are a leotard purchase away from a triple back flip. It’s also easy to watch your finance professor do time value of money problems and convince yourself that you can do them too. There is no substitute for getting out the calculator and flogging the keys until you can do these correctly and quickly. Corporate Finance  Ross ? Westerfield ? Jaffe Sixth Edition Sixth Edition 5 Chapter Five How to Value Bonds and Stocks Chapter Outline 5.1 Definition and Example of a Bond 5.2 How to Value Bonds 5.3 Bond Concepts 5.4 The Present Value of Common Stocks 5.5 Estimates of Parameters in the Dividend-Discount Model 5.6 Growth Opportunities 5.7 The Dividend Growth Model and the NPVGO Model (Advanced) 5.8 Price Earnings Ratio 5.9 Stock Market Reporting 5.10 Summary and Conclusions Valuation of Bonds and Stock First Principles: Value of financial securities = PV of expected future cash flows To value bonds and stocks we need to: Estimate future cash flows: Size (how much) and Timing (when) Discount future cash flows at an appropriate rate: The rate should be appropriate to the risk presented by the security. 5.1 Definition and Example of a Bond A bond is a legally binding agreement between a borrower and a lender: Specifies the principal amount of the loan. Specifies the size and timing of the cash flows: In dollar terms (fixed-rate borrowing) As a formula (adjustable-rate borrowing) 5.1 Definition and Example of a Bond Consider a U.S. government bond listed as 6 3/8 of December 2009. The Par Value of the bond is $1,000. Coupon payments are made semi-annually (June 30 and December 31 for this particular bond). Since the coupon rate is 6 3/8 the payment is $31.875. On January 1, 2002 the size and timing of cash flows are: 5.2 How to Value Bonds Identi