台湾大学财务

Chapter4FundamentalsofCorporateFinanceThirdEditionValuingBondsBrealeyMyersMarcusslidesbyMatthewWillIrwin/McGraw-HillTopicsCoveredBondCharacteristicsreadingthefinancialpagesBondPricesandYieldsBondpricesandinterestratesYTMvs.currentyieldRateofReturnInterestRateRiskTheYieldCurveNominalandRealRatesofInterestDefaultRiskBondsTerminologyBond-Securitythatobligatestheissuertomakespecifiedpaymentstothebondholder.Coupon-Theinterestpaymentsmadetothebondholder.FaceValue

(ParValueorMaturityValue)-Paymentatthematurityofthebond.CouponRate-Annualinterestpayment,asapercentageoffacevalue.BondsWARNING ThecouponrateISNOTthediscountrateusedinthePresentValuecalculations.

Thecouponratemerelytellsuswhatcashflowthebondwillproduce. Sincethecouponrateislistedasa%,thismisconceptionisquitecommon.

BondPricing

ThepriceofabondisthePresentValueofallcashflowsgeneratedbythebond(i.e.couponsandfacevalue)discountedattherequiredrateofreturn.BondPricingExample Whatisthepriceofa6%annualcouponbond,witha$1,000facevalue,whichmaturesin3years?Assumearequiredreturnof5.6%.BondPricingExample(continued) Whatisthepriceofthebondiftherequiredrateofreturnis6%?BondPricingExample(continued) Whatisthepriceofthebondiftherequiredrateofreturnis15%?BondPricingExample(continued) Whatisthepriceofthebondiftherequiredrateofreturnis5.6%ANDthecouponsarepaidsemi-annually?BondPricingExample(continued)Q:Howdidthecalculationchange,givensemi-annualcouponsversusannualcouponpayments?TimePeriodsPayingcouponstwiceayear,insteadofoncedoublesthetotalnumberofcashflowstobediscountedinthePVformula.DiscountRateSincethetimeperiodsarenowhalfyears,thediscountrateisalsochangedfromtheannualratetothehalfyearrate.BondYieldsCurrentYield-Annualcouponpaymentsdividedbybondprice.YieldToMaturity-Interestrateforwhichthepresentvalueofthebond’spaymentsequaltheprice.BondYieldsCalculatingYieldtoMaturity(YTM=r) Ifyouaregiventhepriceofabond(PV)andthecouponrate,theyieldtomaturitycanbefoundbysolvingforr.BondYieldsExample WhatistheYTMofa6%annualcouponbond,witha$1,000facevalue,whichmaturesin3years?Themarketpriceofthebondis$1,010.77BondYieldsWARNING CalculatingYTMbyhandcanbeverytedious. Itishighlyrecommendedthatyoulearntousethe“IRR”or“YTM”or“i”functionsonafinancialcalculator.BondYieldsRateofReturn-Earningsperperiodperdollarinvested.InterestRateRiskPremiumBondDiscountBondInterestRateRisk30yrbond3yrbondNominalandRealratesYieldonUKnominalbondsYieldonUKindexedbondsDefaultRiskCreditriskDefaultpremiumInvestmentgradeJunkbondsDefaultRiskCorporateBondsZerocouponsFloatingratebondsConvertiblebondsTheYieldCurveTermStructureofInterestRates-Alistingofbondmaturitydatesandtheinterestratesthatcorrespondwitheachdate.YieldCurv