Interest-Rates-and-Bond-Valuation利率和债券的估值课件.ppt
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- Interest Rates and Bond Valuation 利率 债券 课件
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1、Interest Rates and Bond ValuationChapter 6Summer 2008Summer 20081RoadmaplBond ValuationlTerminologylBasic valuationlRelationship Between The Bond Value&YTMlWhy the bond price changes?lInterest Risk&Default RisklBond Features and TypeslInflation,Nominal and Real RateslTerm Structure of Interest Rates
2、(Yield Curve)lDeterminates of bond yieldSummer 20082BondslA bond is a debt instrument requiring the issuer to repay to the investors the amount borrowed plus interest over a specified period of time.lInvolved Parties:lIssuers/Debtors/Borrowers:lThe parties(government or corporations)that borrow mone
3、y and issue debt securitieslInvestors/Creditors/Lenders/Bondholders:lThe parties(person,government or corporations that lend money to issuers.(they buy the debt securities).lOther parties:lUnderwriters:Investment banking firms that act as agents to distribute bonds to investors.They will charge a fe
4、e for the service.Summer 20083Bond Face valuelFace Value(Par Value)-FlThe total principal amount that will be repaid at the end of the loan.lIt is often different from market valuelBonds market value is the fair value a bond can be bought/sold in the market.lIn FINA 110,we assume bonds market value
5、is the same as its market price.Summer 20084Bond-CouponslStated annual interest payment make on a bond.lIt is determined upon issuance.Normally,it is expressed as a percentage of par value.lCoupon Payment=Coupon Rate(c)x Par Value.lCoupon rate is NOT the discount rate for discounting!Instead,it is o
6、nly the interest rate that issuer promises to pay periodically.lIf coupon rate is zero,bonds are called Zero-Coupon Bonds(Zeros)lCurrent Yield=the(annual)coupon/the market priceSummer 20085Bond-MaturitylThe number of years left until the face value is paid.lThe maturity date of a bond refers to the
7、date that the debt will cease to exist.lA calendar year can correspond to many compounding periods.Summer 20086IssuerFace ValueCoupon rateMaturity dateCouponFace value,coupon rate and maturity are stated in the bond and fixed.Market value(price),however,varies from time to timeSummer 20087ExamplelCo
8、mpany A has 8%coupon bonds on the market with 9 years left to maturity.The coupon is paid annually.Its par value is$1,000 and currently sells for$1,047.50.lFace value=lMarket value=lCoupon rate=lMaturity=lCompounding periods per year=$1,000$1,047.58%9 years1Summer 20088RoadmaplBond ValuationlTermino
9、logylBasic valuation An application of Discounted Cash Flow ValuationlRelationship Between The Bond Value&YTMlWhy the bond price changes?lInterest Risk&Default RisklBond Features and TypeslInflation,Nominal and Real RateslTerm Structure of Interest Rates(Yield Curve)lDeterminates of bond yieldSummer
10、 20089Bond ValuationlIf bond is correctly priced by the market,we should haveBond PricePV(Coupons)+PV(Face value)Summer 200810Bond Valuation(contd)lF:Face value Bond price:market valuelc:Coupon rate C:Coupon=c*FlT:Maturity r:YTM,or required discount rate21Bond Price.1(1)(1)(1)11*(1)*(1)(1)(1)(1)TTTt
11、TTTtCCCFrrrrCFCFrrrrr0T321 Time(years)$C$C$C$C$C+F.Summer 200811Bond-Yield to Maturity(YTM)lYTM tells you the annual return of the bondlWhat return(yield)we are receiving if we buy and hold this bond till maturitylExample:lCompany A has 8%coupon bonds on the market with 9 years left to maturity.The
12、coupon is paid annually.Its par value is$1,000 and currently sells for$1,047.50.What return are we receiving if we buy and hold these bonds till maturity?9911,000*8%1,0001,047.50(1)(1)ttrrr=7.26%Trial and errorYield to maturity of these bonds is 7.26%.(YTM fluctuates with bonds market price.)Summer
13、200812Bond-Yield to Maturity(YTM)lSince the bonds price is agreed by most investors in the market,YTM reflects the underlying fair level of required return in the market.lIt is also called“Market Interest Rate”lIt implies the current rate of interest or time value of money agreed in the market.lThis
14、 is the appropriate discount rate for the bond valuation.lThe yield is changing over time,which depends on the investors risk attitudes and investment opportunities.Summer 200813Example(YTM)lSuppose the par value(face value)of a bond is$1,000,which will mature in 2 years.It is sold at$1,035.67 and i
15、ts coupon rate is 10%,paid annually.What is YTM?lCoupon=par value*coupon rate =1,000*10%=$100Summer 200814Example(YTM)(contd)012yearMarket value:$1,035.67 Coupon=$100Coupon=$100,Par value=$1,000The bond has a yield to maturity of 8%.(or bonds yield is 8%)2$100$100$1,000$1,035.678%1(1)rrrSummer 20081
16、5Bond Valuation Example-PerpetuitylFace value=1000;Coupon rate=8%;Time to maturity=.Assume that investors require 10%yield to maturity on the bond,what would be the price of the bond?Bond Purchased$80$80$80t=1t=2t=3t=0What is the appropriate rate for bond valuation,10%or 8%?10%Since it is a perpetua
17、l bond,only coupon will be paid.Face value is just used to calculate annual coupon.Summer 200816Bond price at t=0 P=Recall price of perpetuity=C/rValuation of Perpetuity$80(1+0.1)+$80$80(1+0.1)2(1+0.1)3+=$800.1=$800What would be the price of the bond if YTM=8%?P=$80/8%=$1,000Summer 200817Answer to E
18、xamples(1 2)1.Zevon,Inc.,has 9%coupon bonds on the market that have 8 years left to maturity.The bonds make annual payments.If the YTM on these bonds is 7%,what is the current bond price?lAlways assume face value to be$1,000,unless stated otherwise.88881111,000*9%1,0001,000(17%)90*(17%)(17%)7%(17%)$
19、1,119.43ttPSummer 200818Answer to Examples(1 2),contd2.Merton Enterprises has bonds on the market making annual payments,with 16 years to maturity,and selling for$1,051.At this price,the bonds yield to maturity is 6.8%.What must the coupon rate be on Mertons bonds?(Coupon is paid annually.)161616161
20、111,000*1,0001,000(16.8%)$1,0511,000*(16.8%)(16.8%)6.8%(16.8%)7.333%ttcPccSummer 200819RoadmaplBond ValuationlTerminologylBasic valuationlRelationship Between The Bond Value&YTMlWhy the bond price changes?lInterest Risk&Default RisklBond Features and TypeslInflation,Nominal and Real RateslTerm Struc
21、ture of Interest Rates(Yield Curve)lDeterminates of bond yieldSummer 200820Relationship Between The Bond Value&YTMlFace value=1000;Coupon rate=8%,paid annually;Time to maturity=5 years.What would be the price of the bond iflYTM is 8%=coupon ratelYTM is 10%coupon ratelYTM is 6%Coupon RatePrice=C*1 1/
22、(1+r)T/r+F*1/(1+r)T=$80*1-1/1.15/0.1+$1,000/1.15=$303.26+$620.92=$924.18 (discounted by$75.82)Bond sells for less than its face value a Discount Bond If cr,Price=F*(c/r)*1 1/(1+r)T+F*1/(1+r)T F 1-1/(1+r)T+F*1/(1+r)T=FSummer 200824IntuitionlThe market interest rate is 10%,that is also the investors r
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