(精品)Brigham_Ch4FA12.pptx

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1、1Chapter 4Bond Valuation2Key Features of a BondPar value:Face amount;paid at maturity.Assume$1,000.Coupon interest rate:Stated interest rate.Multiply by par value to get dollars of interest.Generally fixed.Maturity:Years until bond must be repaid.Default risk:Risk that issuer will not make interest

2、or principal payments.*Covered in review video*Bond ValuationThe value of the bond is the present value of all coupons paid plus the present value of the par value.Discounted at the YTMCash flow amounts and timing are known(typically)in advance.*Covered in review video*3Bond RelationshipsIf discount

3、 rate/YTM increases(decreases),value of the bond _.*Covered in review video*If the YTM coupon rate,bond sells at _.If the YTM rd,so a call is likely.So,expect to earn:YTC on premium bonds.YTM on par&discount bonds.Practitioners calculate“Yield to Worst”the choice that provides the lowest yield.14Def

4、initionsCurrent yield=Capital gains yield=YTM =+Annual coupon pmtCurrent priceChange in priceBeginning priceExp totalreturnExp Curr yldExp capgains yldInterest Rate Determinantsrd=r*+IP+DRP+LP+MRPrd=rRF+DRP+LP+MRPr*IPDRPMRPrRF15Inflation PremiumNot equal to current inflationThe average expected infl

5、ation over the life of the security.Embedded into the risk-free rate of a Treasury security.16Nominal risk-free raterRF=(1+r*)(1+IP)-1=r*+IP+(r*xIP)r*+IP.(Because r*xIP is small)rRF=Rate on Treasury securities.Estimating IPTreasury Inflation-Protected Securities(TIPS)are indexed to inflation.The IP

6、for a particular length maturity can be approximated as the difference between the yield on a non-indexed Treasury security of that maturity minus the yield on a TIPS of that maturity.Estimating IP10 Year Note 3.46%10 Year TIPS 0.86%Approximate IP=3.46%-0.86%=2.60%Correct Formula IP .0346=.086+IP+.0

7、86*IP =.025778 or 2.58%1月-034月-037月-0310月-031月-044月-047月-0410月-041月-054月-057月-0510月-051月-064月-067月-0610月-061月-074月-077月-0710月-071月-084月-087月-0810月-081月-094月-097月-0910月-091月-104月-107月-1010月-101月-114月-110123456Expected Inflation using 10-Year Treasuries10Y TIP10Y NoteExpected InflationBond Spreads:Def

8、ault Risk Premium(DRP)and Liquidity Premium(LP)A“bond spread”is often calculated as the difference between a corporate bonds yield and a Treasury securitys yield of the same maturity.Therefore:Spread=DRP+LP.Bonds of large,strong companies often have very small LPs.Bonds of small companies often have

9、 LPs as high as 2%.Default Risk PremiumCharacteristics that impact the default risk of a company/bond:Company performance/stabilityBond indentures/covenantsSecured vs.unsecured bondsSubordinated vs.seniorMaturity lengthOther qualitative factors2223Bond RatingsBond Ratings24Maturity Risk PremiumTypically larger for longer maturity securities.Tradeoff between:Interest rate riskReinvestment rate risk25