Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,6-,*,CHAPTER,6,Valuing Bonds,McGraw-Hill/Irwin,Copyright 2012 by The McGraw-Hill Companies,Inc.All rights reserved,.,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,(公司金融第七版)课件,6-,2,Valuing Bonds,A bond is a debt instrument issued by governments or corporations to raise money,The successful investor must be able to:,Understand bond structure,Calculate bond rates of return,Understand interest rate risk,Differentiate between real and nominal returns,6-2Valuing BondsA bond is a de,6-,3,Bond Basics,When governments or companies issue,bonds,they promise to make a series of interest payments and then repay the debt.,Bond,Security that obligates the issuer to make specified payments to the bondholder.,Face Value,Payment at the maturity of the bond.,Coupon,The interest payments paid to the bondholder.,Coupon Rate,Annual interest payment as a percentage of face value.,6-3Bond BasicsWhen governments,6-,4,Bond Pricing:Example,Treasury bond prices are quoted in 32nds rather than in decimals.,For a$1000 face value bond with a,bid,price of 103:05 and an,asked,price of 103:06,how much would an investor pay for the bond?,6-4Bond Pricing:ExampleTreasu,6-,5,Bond Pricing,6-5Bond Pricing,6-,6,Bond Pricing:Example,What is the price of a 9%annual coupon bond with a par value of$1,000 that matures in 3 years?Assume a required rate of return of 4%.,6-6Bond Pricing:Example,6-,7,Bond Pricing,A bond is a package of two investments:an annuity and a final repayment.,6-7Bond PricingA bond is a pac,6-,8,Bond Pricing:Example,What is the value of a 3-year annuity that pays$90 each year and an additional$1,000 at the date of the final repayment?Assume a discount rate of 4%.,6-8Bond Pricing:ExampleWhat i,6-,9,Bond Prices&Interest Rates,As interest rates change,so do bond prices.,What is the present value of a 4%coupon bond with face value$1,000 that matures in 3 years?Assume a discount rate of 5%.,What is the present value of this same bond at a discount rate of 2%?,6-9Bond Prices&Interest Rate,Bonds,WARNING,The,coupon rate,IS NOT the,discount rate,used in the Present Value calculations.,The coupon rate merely tells us what cash flow the bond will produce.Since the coupon rate is listed as a%,this misconception is quite common.,The discount rate is the required rate of return for investors.(opportunity cost of capital),BondsWARNING,Bond Pricing,Conclusion,When the coupon rate equals the discount rate,the PV price equals the original face value.,When market interest rate is greater(less)than the coupon rate,the PV of the bond is less(greater)than the face value.,Market interest rate PV of the bond,Bond PricingConclusion,Interest Rate Risk,Bond prices fluctuate as interest rates change.It is referred to as interest rate risk,The longer(shorter)the maturity of the bond,the greater(less)the change in the bond price for every change in bond discount rates.,Interest Rate Risk Bond prices,Interest Rate Risk,30 yr bond,3 yr bond,When the interest rate equals the 5.5%coupon rate,both bonds sell at face value,Interest Rate Risk30 yr bond3,6-,14,Bond Yields,To calculate how much we earn on a bond investment,we can calculate two types of,bond yields,:,Current Yield,Yield to Maturity,6-14Bond YieldsTo calculate ho,Bond Yields,Current Yield,-Annual coupon payments divided by bond price.,Yield To Maturity,-Interest rate for which the present value of the bonds payments equal the price.,The yield to maturity,is a measure of a bonds total return including both coupon income and capital gain.,Bond YieldsCurrent Yield-Ann,6-,16,Current Yield:Example,Suppose you spend$1,150 for a$1,000 face value bond that pays a$60 annual coupon payment for 3 years.,What is the bonds current yield?,6-16Current Yield:ExampleSupp,6-,17,Yield to Maturity,Yield to Maturity:,6-17Yield to MaturityYield to,6-,18,Yield to Maturity:Example,Suppose you spend$1,150 for a$1,000 face value bond that pays a$60 annual coupon payment for 3 years.,What is the bonds yield to maturity?,6-18Yield to Maturity:Example,Bond Rates of Return,Rate of Return,Bonds earnings for a particular holding period.,Bond Rates of ReturnRate of Re,6-,20,Rate of Return,6-20Rate of Return,6-,21,Rate of Return:Example,Suppose you purchase a 5%coupon bond,par value$1,000,with 5 years until maturity,for$975.00 today.After one year you sell the bond for$965.00.,What was the,rate of return,during the period?,6-21Rate of Return:ExampleSup,Rate of Return,YTM vs.rate of return,YTM ()(unchange)the price of bond ()(unchange)the rate of return for that period less(greater)(equal to)than the yield to maturity.,6-,22,Rate of ReturnYTM vs.rate of,Rate of Return,P136,Self-test 6.7,The first year:Price=$1080/1.06=$1018.87,Rate of return=80+(1018.87 1036.67)/1036.67=,6%,The secondary year:Price=1080/1.06=$1018.87,Rate of return=80+(1000 1018.87)/1018.87