Bonds and Their Valuation 学习课件财务管理英文方案策划.pptVIP

Bonds and Their Valuation 学习课件财务管理英文方案策划.ppt

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Bonds and Their Valuation 学习课件财务管理英文方案策划.ppt

Topic 6(Chapter 4) Bonds and Their Valuation;Define the Bond;Types of Bonds;;Key Features of a Bond;Bond Valuation;The discount rate (kd) is the opportunity cost of capital, i.e., the rate that could be earned on alternative investments of equal risk.;What’s the value of a 10-year, 10% coupon bond if kd = 10%?; 10 10 100 1000 N I/YR PV PMT FV -1,000; 10 13 100 1000 N I/YR PV PMT FV -837.21;What would happen if inflation fell, and kd declined to 7%?;Example;;;;;;;;;Suppose the bond was issued 20 years ago and now has 10 years to maturity. What would happen to its value over time if the required rate of return remained at 10%, or at 13%, or at 7%?;M;At maturity, the value of any bond must equal its par value. The value of a premium bond would decrease to $1,000. The value of a discount bond would increase to $1,000. A par bond stays at $1,000 if kd remains constant.;What’s “yield to maturity”?;What’s the YTM on a 10-year, 9% annual coupon, $1,000 par value bond that sells for $887?; 10 -887 90 1000 N I/YR PV PMT FV 10.91;If coupon rate kd, bond sells at a discount. If coupon rate = kd, bond sells at its par value. If coupon rate kd, bond sells at a premium. If kd rises, price falls. Price = par at maturity. ;Find YTM if price were $1,134.20.;How does adding a call provision affect a bond?;Yield to Call (YTC);;Example;;;; YTC=4.21%;Definitions;Find current yield and capital gains yield for a 9%, 10-year bond when the bond sells for $887 and YTM = 10.91%.;YTM = Current yield + Capital gains yield. Cap gains yield = YTM - Current yield = 10.91% - 10.15% = 0.76%.;Interest Rate Risk Reinvestment Rate Risk ; It is the risk of a decline in bond values due to rising interest rates.;What’s interest rate (or price) risk? Does a 1-year or 10-year 10% bond have more risk?;0;;What is reinvestment rate risk?;Year 1 income = $50,000. At year-end get back $500,

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