Chapter+07bond财务管理.ppt

CHAPTER 7Bonds and Their Valuation Key features of bonds Bond valuation Measuring yield Assessing risk What is a bond? A long-term debt instrument in which a borrower agrees to make payments of principal and interest, on specific dates, to the holders of the bond. Bond markets Primarily traded in the over-the-counter (OTC) market. Most bonds are owned by and traded among large financial institutions. Full information on bond trades in the OTC market is not published, but a representative group of bonds is listed and traded on the bond division of the NYSE. Key Features of a Bond Par value – face amount of the bond, which is paid at maturity (assume $1,000). Coupon interest rate – stated interest rate (generally fixed) paid by the issuer. Multiply by par value to get dollar payment of interest. Maturity date – years until the bond must be repaid. Issue date – when the bond was issued. Yield to maturity - rate of return earned on a bond held until maturity (also called the “promised yield”). The value of financial assets What is the opportunity cost of debt capital? The discount rate (ri ) is the opportunity cost of capital, and is the rate that could be earned on alternative investments of equal risk. ri = r* + IP + MRP + DRP + LP What is the value of a 30-year, 5% annual coupon bond, if rd = 9%? Bond Cash Flows Annuity + Single Sum Annuity: 50 PMT, 30 N, 9 I/Y, PV = 513.68 Single Sum: 1,000 FV, 30 N, 9 I/Y, PV = 75.37 Bond price = 513.68 + 75.37 = 589.05 Using a financial calculator to value a bond Combination of Annuity and single sum. INPUTS OUTPUT N I/YR PMT PV FV 30 9 50 1000 -589.05 If rd = 6%? Price = Discount Bond If rd = 3%? Price = Premium Bond Inverse relationship between interest rate and bond price If rd = 5%? If the bond price is $760, what is rd? YTM (Yield to Maturity) calculation -760 PV, 50 PMT, 30 N, 1,000 FV I/Y = 6.92% Semiannual coupon payment PMT = 50/2 = 25 If rd = 9%, 25 PMT, 1000 FV, 60 N, 4.5 I/Y