财务管理chap7.ppt
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财务管理chap7.ppt
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Chapter7InterestRatesandBondValuation0ChapterOutlineBondsandBondValuationMoreonBondFeaturesBondRatingsSomeDifferentTypesofBondsBondMarketsInflationandInterestRatesDeterminantsofBondYields1KeyConceptsandSkillsKnowtheimportantbondfeaturesandbondtypesUnderstandbondvaluesandwhytheyfluctuateUnderstandbondratingsandwhattheymeanUnderstandtheimpactofinflationoninterestratesUnderstandthetermstructureofinterestratesandthedeterminantsofbondyields2BondDefinitionsBondParvalue(facevalue)CouponrateCouponpaymentMaturitydateYieldorYieldtomaturity3PVofCashFlowsasRatesChangeBondValue=PVofcoupons+PVofparBondValue=PVannuity+PVoflumpsumRemember,asinterestratesincrease,thePVsdecreaseSo,asinterestratesincrease,bondpricesdecreaseandviceversa4ValuingaDiscountBondwithAnnualCouponsConsiderabondwithacouponrateof10%andcouponspaidannually.Theparvalueis$1,000andthebondhas5yearstomaturity.Theyieldtomaturityis11%.Whatisthevalueofthebond?
Usingtheformula:
B=PVofannuity+PVoflumpsumB=$10011/(1.11)5/.11+$1,000/(1.11)5B=$369.59+593.45=$963.04Usingthecalculator:
N=5;I/Y=11;PMT=100;FV=1,000CPTPV=-963.045ValuingaPremiumBondwithAnnualCouponsSupposeyouarelookingatabondthathasa10%annualcouponandafacevalueof$1,000.Thereare20yearstomaturityandtheyieldtomaturityis8%.Whatisthepriceofthisbond?
Usingtheformula:
B=PVofannuity+PVoflumpsumB=$10011/(1.08)20/.08+$1,000/(1.08)20B=$981.81+214.55=$1,196.36Usingthecalculator:
N=20;I/Y=8;PMT=100;FV=1,000CPTPV=-1,196.366GraphicalRelationshipBetweenPriceandYTM7BondPrices:
RelationshipBetweenCouponandYieldIfYTM=couponrate,thenparvalue=bondpriceIfYTMcouponrate,thenbondpriceparvalueWhy?
Pricebelowpar=“discount”bondIfYTMparvalueWhy?
Priceabovepar=“premium”bond8TheBond-PricingEquation9Example7.1FindpresentvaluesbasedonthepaymentperiodHowmanycouponpaymentsarethere?
Whatisthesemiannualcouponpayment?
Whatisthesemiannualyield?
B=$7011/(1.08)14/.08+$1,000/(1.08)14=$917.56OrPMT=70;N=14;I/Y=8;FV=1,000;CPTPV=-917.5610InterestRateRiskChangeinpriceduetochangesininterestratesInterestratesup,bondpricedown!
Long-termbondshavemoreinterestrateriskthanshort-termbondsMore-distantcashflowsaremoreadverselyaffectedbyanincreaseininterestratesLowercouponratebondshavemoreinterestrateriskthanhighercouponratebondsMoreofthebondsvalueisdeferredtomaturity(thus,foralongertime)ifthecouponsaresmall11Figure7.212ComputingYTMYieldtomaturityistherateimpliedbythecurrentbondpriceFindingtheYTMrequirestrialanderrorifyoudonothaveafinancialcalculator,andissimilartotheprocessforfindingrwithanannuityIfyouhaveafinancialcalculator,enterN,PV,PMTandFV,rememberingthesignconvention(PMTandFVneedtohavethesamesign;PVtheoppositesign)13YTMwithAnnualCouponsConsiderabondwitha10%annualcouponrate,15yearstomaturity,andaparvalueof$1,000.Thecurrentpriceis$928.09.Willtheyieldbemoreorlessthan10%?
N=15;PV=-928.09;FV=1,000;PMT=100CPTI/Y=11%14YTMwithSemiannualCouponsSupposeabondwitha10%couponrateandsemiannualcoupons,hasafacevalueof$1,000,20yearstomaturityandissellingfor$1,197.93.IstheYTMmoreorlessthan10%?
Whatisthesemiannualcouponpayment?
Howmanyperiodsarethere?
N=40;PV=-1,197.93;PMT=50;FV=1,000;CPTI/Y=4%(IsthistheYTM?
)YTM=4%*2=8%15Table6.116SpreadsheetStrategiesThereisaspecificformulaforfindingbondpricesonaspreadsheetPRICE(Settlement,Maturity,Rate,Yld,Redemption,Frequency,Basis)YIELD(Settlement,Maturity,Rate,Pr,Redemption,Frequency,Basis)SettlementandmaturityneedtobeactualdatesTheredemptionandPrneedtogivenas%ofparvalueClickontheExceliconforanexample17DifferencesBetweenDebtandEquityDebtNotanownershipinterestCreditorsdonothavevotingrightsInterestisconsideredacostofdoingbusinessandistax-deductibleCreditorshavelegalrecourseifinterestorprincipalpaymentsaremissedExcessdebtcanleadtofinancialdistressandbankruptcyEquityOwnershipinterestCommonstockholdersvotetoelecttheboardofdirectorsandonotherissuesDividendsarenotconsideredacostofdoingbusinessandarenottaxdeductibleDividendsarenotaliabilityofthefirmuntildeclared.StockholdershavenolegalrecourseifnodividendsaredeclaredAnall-equityfirmcannotgobankrupt18FeaturesofBond19TheBondIndentureContractbetweenthecompanyandthebondholdersandincludesThebasictermsofthebondsThetotalamountofbondsissuedAdescriptionofpropertyusedassecurity,ifapplicableSinkingfundprovisionsCallprovisionsDetailsofprotectivecovenants20BondClassificationsRegisteredvs.BearerFormsSecurityCollateralsecuredbyfinancialsecuritiesMortgagesecuredbyrealproperty,normallylandorbuildingsDebenturesu
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