《财务管理：理论与实践》（Brigham）的教学PPTCh 09 Show.ppt

You could buy, for $1,000, either a 10%, 10-year, annual payment bond or an equally risky 10%, 10-year semiannual bond. Which would you prefer? The semiannual bond’s EFF% is: 10.25% 10% EFF% on annual bond, so buy semiannual bond. . If $1,000 is the proper price for the semiannual bond, what is the proper price for the annual payment bond? Semiannual bond has kNom = 10%, with EFF% = 10.25%. Should earn same EFF% on annual payment bond, so: INPUTS OUTPUT 10 10.25 100 1000 N I/YR PV PMT FV -984.80 At a price of $984.80, the annual and semiannual bonds would be in equilibrium, because investors would earn EFF% = 10.25% on either bond. Effective Rates 2. Bond vs. Mortgage Suppose Hadden Inc. is negotiating with an insurance company to sell it a bond issue. Each bond has a par value of $1,000, it would pay 10% per year in quarterly payments of $25 per quarter for 10 years, and then it would pay 12% per year ($30 per quarter) for the next 10 years (Years 11-20). The $1,000 principal would be returned at the end of 20 years. The insurance company’s alternative investment is in a 20-year mortgage which has a nominal rate of 14 percent and which provides monthly payments. If the mortgage and the bond issue are equally risky, how much should the insurance company be willing to pay Hadden for each bond? A 10-year, 10% semiannual coupon, $1,000 par value bond is selling for $1,135.90 with an 8% yield to maturity. It can be called after 5 years at $1,050. What’s the bond’s nominal yield to call (YTC)? 10 -1135.9 50 1050 N I/YR PV PMT FV 3.765 x 2 = 7.53% INPUTS OUTPUT kNom = 7.53% is the rate brokers would quote. Could also calculate EFF% to call: EFF% = (1.03765)2 - 1 = 7.672%. This rate could be compared to monthly mortgages, and so on. If you bought bonds, would you be more likely to earn YTM or YTC? Coupon rate = 10% vs. YTC = kd = 7.53%. Could raise money by