财务管理chap7.ppt
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财务管理chap7.ppt
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0,Chapter7,InterestRatesandBondValuation,1,ChapterOutline,BondsandBondValuationMoreonBondFeaturesBondRatingsSomeDifferentTypesofBondsBondMarketsInflationandInterestRatesDeterminantsofBondYields,2,KeyConceptsandSkills,KnowtheimportantbondfeaturesandbondtypesUnderstandbondvaluesandwhytheyfluctuateUnderstandbondratingsandwhattheymeanUnderstandtheimpactofinflationoninterestratesUnderstandthetermstructureofinterestratesandthedeterminantsofbondyields,3,BondDefinitions,BondParvalue(facevalue)CouponrateCouponpaymentMaturitydateYieldorYieldtomaturity,4,PVofCashFlowsasRatesChange,BondValue=PVofcoupons+PVofparBondValue=PVannuity+PVoflumpsumRemember,asinterestratesincrease,thePVsdecreaseSo,asinterestratesincrease,bondpricesdecreaseandviceversa,5,ValuingaDiscountBondwithAnnualCoupons,Considerabondwithacouponrateof10%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=-963.04,6,ValuingaPremiumBondwithAnnualCoupons,Supposeyouarelookingatabondthathasa10%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=-1,196.36,7,GraphicalRelationshipBetweenPriceandYTM,8,BondPrices:
RelationshipBetweenCouponandYield,IfYTM=couponrate,thenparvalue=bondpriceIfYTMcouponrate,thenbondpriceparvalueWhy?
Priceabovepar=“premium”bond,9,TheBond-PricingEquation,10,Example7.1,FindpresentvaluesbasedonthepaymentperiodHowmanycouponpaymentsarethere?
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=-917.56,11,InterestRateRisk,ChangeinpriceduetochangesininterestratesInterestratesup,bondpricedown!
Long-termbondshavemoreinterestrateriskthanshort-termbondsMore-distantcashflowsaremoreadverselyaffectedbyanincreaseininterestratesLowercouponratebondshavemoreinterestrateriskthanhighercouponratebondsMoreofthebondsvalueisdeferredtomaturity(thus,foralongertime)ifthecouponsaresmall,12,Figure7.2,13,ComputingYTM,YieldtomaturityistherateimpliedbythecurrentbondpriceFindingtheYTMrequirestrialanderrorifyoudonothaveafinancialcalculator,andissimilartotheprocessforfindingrwithanannuityIfyouhaveafinancialcalculator,enterN,PV,PMTandFV,rememberingthesignconvention(PMTandFVneedtohavethesamesign;PVtheoppositesign),14,YTMwithAnnualCoupons,Considerabondwitha10%annualcouponrate,15yearstomaturity,andaparvalueof$1,000.Thecurrentpriceis$928.09.Willtheyieldbemoreorlessthan10%?
N=15;PV=-928.09;FV=1,000;PMT=100CPTI/Y=11%,15,YTMwithSemiannualCoupons,Supposeabondwitha10%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%,16,Table6.1,17,SpreadsheetStrategies,ThereisaspecificformulaforfindingbondpricesonaspreadsheetPRICE(Settlement,Maturity,Rate,Yld,Redemption,Frequency,Basis)YIELD(Settlement,Maturity,Rate,Pr,Redemption,Frequency,Basis)SettlementandmaturityneedtobeactualdatesTheredemptionandPrneedtogivenas%ofparvalueClickontheExceliconforanexample,18,DifferencesBetweenDebtandEquity,DebtNotanownershipinterestCreditorsdonothavevotingrightsInterestisconsideredacostofdoingbusinessandistax-deductibleCreditorshavelegalrecourseifinterestorprincipalpaymentsaremissedExcessdebtcanleadtofinancialdistressandbankruptcy,EquityOwnershipinterestCommonstockholdersvotetoelecttheboardofdirectorsandonotherissuesDividendsarenotconsideredacostofdoingbusinessandarenottaxdeductibleDividendsarenotaliabilityofthefirmuntildeclared.StockholdershavenolegalrecourseifnodividendsaredeclaredAnall-equityfirmcannotgobankrupt,19,FeaturesofBond,20,TheBondIndenture,ContractbetweenthecompanyandthebondholdersandincludesThebasictermsofthebondsThetotalamountofbondsissuedAdescriptionofpropertyusedassecurity,ifapplicableSinkingfundprovisionsCallprovisionsDetailsofprotectivecovenants,21,BondClassifications,Registeredvs.BearerFormsSecurityCollateralsecuredbyfinancialsecuritiesMortgagesecuredbyrealproperty,normallylandorbuildingsDebenturesunsecuredNotesunsecureddebtwithoriginalmaturitylessthan10yearsSeniority,22,BondCharacteristicsandRequiredReturns,Thecouponrateisusuallysetclosetotheyield,whichdependsontheriskcharacteristicsofthebondwhenissuedWhichbondswillhavethehigheryield,allelseequal?
SecureddebtversusadebentureSubordinateddebentureversusseniordebtAbondwithasinkingfundversusonewithoutAcallablebondversusanon-callablebond,23,BondRatingsInvestmentQuality,24,BondRatingsInvestmentQuality,HighGradeMoodysAaaandS&PAAAcapacitytopayisextremelystrongMoodysAaandS&PAAcapacitytopayisverystrongMediumGradeMoodysAandS&PAcapacitytopayisstrong,butmoresusceptibletochangesincircumstancesMoodysBaaandS&PBBBcapacitytopayisadequate,butadverseconditionswillhavemoreimpactonthefirmsabilitytopay,25,BondRatings-Speculative,LowGradeMoodysBa,B,Caa,andCaS&PBB,B,CCC,CCConsideredspeculativewithrespecttocapacitytopay.The“B”ratingsarethelowestdegreeofspeculation.VeryLowGradeMoodysCandS&PCincomebondswithnointerestbeingpaidMoodysDandS&PDindefaultwithprincipalandinterestinarrears,26,GovernmentBonds,TreasurySecuritiesFederalgovernmentdebtT-billspurediscountbondswithoriginalmaturityofoneyearorlessT-notescoupondebtwithoriginalmaturitybetweenoneandtenyearsT-bondscoupondebtwithoriginalmaturitygreaterthantenyearsMunicipalSecuritiesDebtofstateandlocalgovernmentsVaryingdegreesofdefaultrisk,ratedsimilartocorporatedebtInterestreceivedistax-exemptatthefederallevel,27,Example6.4,Ataxablebondhasayieldof8%andamunicipalbondhasayieldof6%Ifyouareina40%taxbracket,whichbonddoyouprefer?
8%(1-.4)=4.8%Theafter-taxreturnonthecorporatebondis4.8%,comparedtoa6%returnonthemunicipalAtwhattaxratewouldyoubeindifferentbetweenthetwobonds?
8%(1T)=6%T=25%,28,ZeroCouponBonds,Makenoperiodicinterestpayments(couponrate=0%)TheentireyieldtomaturitycomesfromthedifferencebetweenthepurchasepriceandtheparvalueCannotsellformorethanparvalueSometimescalledzeroes,ordeepdiscountbondsTreasuryBillsandprincipal-onlyTreasurystripsaregoodexamplesofzeroes,29,Floating-RateBonds,CouponratefloatsdependingonsomeindexvalueExamplesadjustableratemortgagesandinflation-linkedTreasuriesThereislesspriceriskwithfloating-ratebondsThecouponfloats,soitislesslikelytodiffersubstantiallyfromtheyieldtomaturityCouponsmayhavea“collar”theratecannotgoaboveaspecified“ceiling”orbelowaspecified“floor”,30,OtherBondTypes,DisasterbondsIncomebondsConvertiblebondsPutbondTherearemanyothertypesofprovisionsthatcanbeaddedtoabondandmanybondshaveseveralprovisionsitisimportanttorecognizehowtheseprovisionsaffectrequiredreturns,31,BondMarkets,Primarilyover-the-countertransactionswithdealersconnectedelectronicallyExtremelylargenumberofbondissues,butgenerallylowdailyvolumeinsingleissuesMakesgettingup-to-datepricesdifficult,particularlyonsmallcompanyormunicipalissuesTreasurysecuritiesareanexception,32,Example:
WorktheWeb,BondyieldinformationisavailableonlineOnegoodsiteisBondsOnlineClickontheWebsurfertogotothesiteFollowthe“bondsearch,”“search/quotecenter,”“corporate/agencybonds,”and“compositebondyields”linksObservetheyieldsforvariousbondtypes,andtheshapeoftheyieldcurve.,33,BondQuotations,ConsiderthelastTreasuryquotationinFigure6.3:
4Feb3692:
2192:
22-84.98Whatwasthepreviousdaysaskedprice?
34,InflationandInterestRates,RealrateofinterestchangeinpurchasingpowerNominalrateofinterest-quotedrateofinterest;ReflectschangeinpurchasingpowerandinflationTheexantenominalrateofinterestincludesourdesiredrealrateofreturnplusanadjustmentforexpectedinflation,35,TheFisherEffect,TheFisherEffectdefinestherelationshipbetweenrealrates,nominalrates,andinflation(1+R)=(1+r)(1+h),whereR=nominalrater=realrateh=expectedinflationrateApproximationR=r+h,36,Example6.6,Ifwerequirea10%realreturnandweexpectinflationtobe8%,whatisthenominalrate?
R=(1.1)(1.08)1=.188=18.8%Approximation:
R=10%+8%=18%Becausetherealreturnandexpectedinflationarerelativelyhigh,thereisasignificantdifferencebetweentheactualFisherEffectandtheapproximation.,37,TermStructureofInterestRates,Termstructureistherelationshipbetweentimetomaturityandyields,allelseequalItisimportanttorecognizethatwepullouttheeffectofdefaultrisk,differentcoupons,etc.NominalinterestratesDefault-freePurediscountbondYieldcurvegraphicalrepresentationofthetermstructureNormalupward-sloping;long-termyieldsarehigherthanshort-termyieldsInverteddownward-sloping;long-termyieldsarelowerthanshort-termyields,38,Figure6.5Upward-SlopingYieldC
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