公司理财chap5dtan.pptx

《公司理财chap5dtan.pptx》由会员分享，可在线阅读，更多相关《公司理财chap5dtan.pptx（36页珍藏版）》请在得力文库 - 分享文档赚钱的网站上搜索。

1、Interest Rates and Bond ValuationChapter 5Key Concepts and Skills Understand bond values and why they fluctuate Understand bond ratings and what they mean Understand the impact of inflation on interest rates Understand the term structure of interest rates and the determinants of bond yieldsChapter O

2、utline5.1 Bonds and Bond Valuation5.2 More on Bond Features5.3 Inflation and Interest Rates5.4 Determinants of Bond Yields5.1 Bonds and Bond Valuation A bond is a legally binding agreement between a borrower and a lender that specifies the:Par(face)value(面值)Coupon rate(票面利率)Coupon payment(票面利息)Matur

3、ity Date(到期日)The yield to maturity(到期收益率)is the required market interest rate on the bond.Bond Valuation Primary Principle:Value of financial securities=PV of expected future cash flows Bond value is,therefore,determined by the present value of the coupon payments and par value.Interest rates are in

4、versely related to present(i.e.,bond)values.The Bond Pricing Equation Suppose a corporate issued a 5-year bond with 8%coupon on January 1 of 2013.The Par Value of the bond is$1,000.Coupon payments are made semi-annually(June 30 and December 31 for this particular bond).Since the coupon rate is 8%,th

5、e payment is$40.On January 1 of 2013 the size and timing of cash flows will be:Bond Example On January 1,2013,the required yield is 6%.How can we calculate the bond value?Now assume that the required yield is 12%.What is the bonds value now?Now assume that the required yield is also 8%.What is the b

6、onds value now?Bond Conceptsq Bond prices and market interest rates move in opposite directions.q When coupon rate=YTM,price=par value(par bond)q When coupon rate YTM,price par value(premium bond)q When coupon rate YTM,price par value(discount bond)Suppose a firm were to issue a bond with 10 years t

7、o maturity.The face value of the bond is$1,000 and the annual coupon is$100.What is the value of the bond if the required market interest rate is 8%/10%/12%?When the required market interest rate is 8%When the required market interest rate is 10%When the required market interest rate is 12%What is t

8、he value of the bond 2 years after issuing?When the required market interest rate is 8%When the required market interest rate is 10%When the required market interest rate is 12%q When the required market interest rate is constant:q The value of par bond will maintain unchanged.q The value of premium

9、 bond will gradually decrease with the coming of maturity date.It=par value at maturity date.q The value of discount bond will gradually increase with the coming of maturity date.It=par value at maturity date.Interest Rate Riskq Change in price due to changes in interest rates:q All other things bei

10、ng equal,the longer the time to maturity,the greater the interest rate risk.q All other things being equal,the lower the coupon rate,the greater the interest rate risk.Have a try!Suppose a firm has a bond with 20 years to maturity.The face value of the bond is$20,000.The bond makes no payments for t

11、he first six years,then pays$800 every six months over the subsequent eight years,and finally pays$1,000 every six months over the last 6 years.If the required return on the bond is 8%compounded semiannually,What is the current price of the bond?Computing Yield to Maturity Yield to maturity is the r

12、ate implied by the current bond price.Finding the YTM requires trial and error and is similar to the process for finding R with an annuity.Suppose we are interested in a 6-year,8%coupon bond.The face value of the bond is$1000 and the price of the bond is$1115.What is the YTM of this bond?Current Yie

13、ld vs.Yield to Maturity Current Yield=annual coupon/price Yield to maturity=Current yield+Capital gains yield Example:10%coupon bond,with annual coupons,face value of 1,000,20 years to maturity,$1,196.31 price Current yield=100/1196.31=8.36%Price in one year(assuming no change in YTM)=1,192.06 Capit

14、al gains yield=(1192.06 1196.31)/1196.31=-.36%YTM=8.36-.36=8%Pure Discount Bonds(纯贴现债券)Make no periodic interest payments(coupon rate=0%)The entire yield to maturity comes from the difference between the purchase price and the par value.Cannot sell for more than par value Sometimes called zeroes,dee

15、p discount bonds,or original issue discount bonds(OIDs)Information needed for valuing pure discount bonds:Time to maturity(T)Face value(F)Discount rate(r)Present value of a pure discount bond at time 0:Pure Discount Bonds:ExampleFind the value of a 30-year zero-coupon bond with a$1,000 par value and

16、 a YTM of 6%.Consols(金边债券)Not all bonds have a final maturity.British consols pay a set amount(i.e.,coupon)every period forever.These are examples of a perpetuity.Debt Not an ownership interest Creditors do not have voting rights Interest is considered a cost of doing business and is tax deductible

17、Creditors have legal recourse if interest or principal payments are missed Excess debt can lead to financial distress and bankruptcy Equity Ownership interest Common stockholders vote for the board of directors and other issues Dividends are not considered a cost of doing business and are not tax de

18、ductible Dividends are not a liability of the firm,and stockholders have no legal recourse if dividends are not paid An all equity firm can not go bankruptDebt versus Equity5.2 More on Bond FeaturesBond Ratings:Investment Quality High Grade Moodys Aaa and S&P AAA capacity to pay interest and princip

19、al is extremely strong Moodys Aa and S&P AA capacity to pay is very strong Medium Grade Moodys A and S&P A capacity to pay is strong,but more susceptible to the adverse effects of changes in circumstances and economic conditions Moodys Baa and S&P BBB capacity to pay is adequate,adverse conditions w

20、ill have more impact on the firms ability to payBond Ratings:Speculative Low Grade Moodys Ba and B S&P BB and B Considered speculative with respect to capacity to pay Very Low Grade Moodys C and S&P C income bonds with no interest being paid S&P D in default with principal and interest in arrearsGov

21、ernment Bonds Treasury Securities 国库券 Federal government debt T-bills pure discount bonds with original maturity less than one year T-notes coupon debt with original maturity between one and ten years T-bonds coupon debt with original maturity greater than ten years Municipal Securities 市政证券 Debt of

22、 state and local governments Varying degrees of default risk,rated similar to corporate debt Interest received is tax-exempt at the federal levelAfter-tax Yields A taxable bond has a yield of 8%,and a municipal bond has a yield of 6%.If you are in a 40%tax bracket,which bond do you prefer?8%(1-.4)=4

23、.8%The after-tax return on the corporate bond is 4.8%,compared to a 6%return on the municipal At what tax rate would you be indifferent between the two bonds?8%(1 T)=6%T=25%5.3 Inflation and Interest Rates Suppose the one-year interest rate is 15.5%.Imagine a pizza costs$5 today.Assume the inflation

24、 rate is 5%.If you have$100 today,how many pizzas can you buy today?If you deposit$100 in a bank,how many pizzas can you buy next year?Real rate of interest change in purchasing power Nominal rate of interest quoted rate of interest,change in purchasing power and inflation The ex ante nominal rate o

25、f interest includes our desired real rate of return plus an adjustment for expected inflation.The Fisher Effect The Fisher Effect defines the relationship between real rates,nominal rates,and inflation.1+R=(1+r)(1+h),where R=nominal rate r=real rate h=expected inflation rate Approximation R=r+hThe F

26、isher Effect:Example If we require a 10%real return and we expect inflation to be 8%,what is the nominal rate?R=(1.1)(1.08)1=.188=18.8%Approximation:R=10%+8%=18%Because the real return and expected inflation are relatively high,there is a significant difference between the actual Fisher Effect and t

27、he approximation.5.4 Determinants of Bond Yields Term structure of interest rates is the relationship between time to maturity and yields,all else equal.It is important to recognize that we pull out the effect of default risk,different coupons,etc.Yield curve graphical representation of the term str

28、ucture Normal upward-sloping,long-term yields are higher than short-term yields Inverted downward-sloping,long-term yields are lower than short-term yieldsFactors Affecting Required Return Default risk premium remember bond ratings Taxability premium remember municipal versus taxable Liquidity premi

29、um bonds that have more frequent trading will generally have lower required returns Anything else that affects the risk of the cash flows to the bondholders will affect the required returns.Quick Quiz How do you find the value of a bond,and why do bond prices change?What are bond ratings,and why are

30、 they important?How does inflation affect interest rates?What is the term structure of interest rates?What factors determine the required return on bonds?Conclusion The bond yields represent the combined effect of no fewer than six factors.The first one is the real rate of interest.On top of the real rate are five premiums representing compensation for(1)expected future inflation,(2)interest rate risk,(3)default risk,(4)taxability,and(5)lack of liquidity.