201文档新0秋季在职探究生财务2(1).ppt

* * * To find the PVGO, note that the firm retains $3.50 out of the first year’s earnings to invest at 20%. This results in a positive NPV of $0.875. A growing perpetuity of these positive NPVs is worth $43.75 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * This formalizes the present value calculation. * * * * m is the number of compounding periods during a year. * Note that the assumed starting date is January 2006. This, however, provides a good beginning point for illustrating bond pricing in Excel, where you can specify exact beginning and ending dates. * Note that this example illustrates a premium bond (i.e., coupon rate is larger than the required yield). * Please note that you need to have the analysis tool pack add-ins installed to access the PRICE and YIELD functions. If you do not have these installed on your computer, you can use the PV and the RATE functions to compute price and yield as well. Click on the TVM tab to find these calculations. * Please note that you need to have the analysis tool pack add-ins installed to access the PRICE and YIELD functions. If you do not have these installed on your computer, you can use the PV and the RATE functions to compute price and yield as well. Click on the TVM tab to find these calculations. * Please note that you need to have the analysis tool pack add-ins installed to access the PRICE and YIELD functions. If you do not have these installed on your computer, you can use the PV and the RATE functions to compute price and yield as well. Click on the TVM tab to find these calculations. * * * * Note that this example illustrates a discount bond (i.e., coupon rate is smaller than the required yield). * * The students should be able to recognize that the YTM is more than the coupon since the price is less than par. * * * * * Point out that D1 / P0 is the dividend yield and g is the capital gains yield. You could also use this point to introduce the CAPM as a method for computing required return. * *