FINANCIAL INTERMEDIARIES AND FINANCIAL INNOVATION金融中介和金融创新.pptVIP

Chapter 10 PROPERTIES AND PRICING OF FINANCIAL ASSETS Properties of Financial Assets Moneyness Divisibility and Denomination Reversibility Cash Flow Term to Maturity Convertibility Currency Liquidity Return Predictability Complexity Tax Status Principles of Pricing Financial Assets The market price of an asset equals: Appropriate Discount Rate The appropriate discount rate is equal to: r = RR + IP + DP + MP + LP + EP where: RR = the real rate of interest IP = the inflation premium DP = the default risk premium MP = the maturity premium LP = the liquidity premium EP = the exchange-rate risk premium Price and Asset Properties The price of a financial asset is inversely related to its discount rate. As the discount rate rises, the price falls. As the discount rate falls, the price rises. Reversibility in the form of commissions and transfer fees reduce the price of the asset. Effect of Asset Properties on the Discount Rate Tax Treatment After-tax discount rate equals Pretax discount rate x (1 - marginal tax rate) If the marginal tax rate is expected to increase, the after-tax discount rate will decrease If the marginal tax rate is expected to decrease, the after-tax discount rate will increase Price Volatility of Financial Assets The required rate of return or required yield of an asset is inversely related to its price. The sensitivity of the asset‘s price to a change in the required yield will not be the same for all assets. Changes in the required yield are measured in terms of basis points. Price Sensitivity of Financial Assets The price sensitivity of a financial asset to a given change in yield is affected by the asset’s: Maturity Coupon Yield level Price Sensitivity of Financial Assets Maturity The longer the maturity of an asset, the greater the price sensitivity to a change in the required yield. Coupon Rate The lower the coupon rate, the greater the price sensitivity to a chan