university_of_Saskatchewan公司财务导论(金融学)(2)
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issuer. • The issuer promises to:
➢ Make coupon payments until maturity ➢ Pay the face value at maturity • Coupon rate • Current yield
Fall 2003
h
2
Definition and Features of Bonds
• What is the bond’s value if the market’s required return on similar bonds is 10%? What are the coupon rate and current yield?
• What if the rate of return is 8%? • What if the rate of return is 12%?
Bond Valuation and Term Structure of Interest Rates
Definition and Features of Bonds
• A bond is an IOU. • A bond represents a loan made by investors to the
Fall 2003
h
5
Valuing a Bond: Another Example
Assume you have the following information. Seagrams bonds have a $1000 face value. The promised annual coupon is $100. The bonds mature in 20 years.
• Results for constant interest rates
➢ If C/F > r, then P0(C) > F. ➢ If C/F = r, then P0(C) = F. ➢ If C/F < r, then P0(C) < F
Fall 2003
h
8
Holding Period Returns of Bonds
P 0
P 0
curryeie n lc tdapgitaa yin lield
Fall 2003
h
9
Coupon Bond Valuation: Another Example
Consider a 2 year U.S. Treasury Note with annual coupon rate of 8% (coupon paid semiannually) and face value $1000. Suppose the bond yield is 10%.
• Dollar returns from holding a bond for a certain period ➢ Coupon income ➢ Capital gain/loss
• One-period holding period return
HPR CouIp no cn o C maepgia t( aio n llo r ss)
• Some terminology
➢ P0(C) < F sell at a discount.
➢ P0(C) = F sell at par. ➢ P0(C) > F sell at a premium. • Inverse relation between bond prices and interest rates
• Bond issuers ➢ Federal government ➢ Private Corporations ➢ Government agencies (in the US) ➢ Municipal governments
• Default
Fall 2003
h
3
Valuing a Bond: An Example
Face Value
$1000
Market PrBiblioteka Baiduce today = ?
• How much is this bond worth? • Coupon rate? • Current yield?
Fall 2003
h
4
Valuing a Bond: An Example (Cont’d)
• If the going rate on bonds like this one is 10%, then this bond has a market value of $924.18.
Fall 2003
h
6
Bond Valuation: A Summary
• Bond Value = Present Value of the Coupons + Present Value of the Face Value
If the interest rate is constant, Bond Value = C [1 - 1/(1 + r )t]/r
P0(Bo)n P dV (BoC n)F d 80 80 80 80 801000
10.11.121.131.141.151.15 92.148
Alternatively, P 0 ( Bo )n 8 d 0 PVA5 F ) 1 ( 1 .1 0 5 0 .9 0 1. 2 0 1 04 8 ,
+ F 1/(1 + r )t where: C = Coupon paid each period
r = Rate per period t = Number of periods F = Bond’s face value
Fall 2003
h
7
Bond Valuation: A Summary (Cont’d)
• If a bond has five years to maturity, an $80 annual coupon, and a $1000 face value, its cash flows would look like this:
Time
0
1
2
3
4
5
Coupons
$80 $80 $80 $80 $80
➢ Make coupon payments until maturity ➢ Pay the face value at maturity • Coupon rate • Current yield
Fall 2003
h
2
Definition and Features of Bonds
• What is the bond’s value if the market’s required return on similar bonds is 10%? What are the coupon rate and current yield?
• What if the rate of return is 8%? • What if the rate of return is 12%?
Bond Valuation and Term Structure of Interest Rates
Definition and Features of Bonds
• A bond is an IOU. • A bond represents a loan made by investors to the
Fall 2003
h
5
Valuing a Bond: Another Example
Assume you have the following information. Seagrams bonds have a $1000 face value. The promised annual coupon is $100. The bonds mature in 20 years.
• Results for constant interest rates
➢ If C/F > r, then P0(C) > F. ➢ If C/F = r, then P0(C) = F. ➢ If C/F < r, then P0(C) < F
Fall 2003
h
8
Holding Period Returns of Bonds
P 0
P 0
curryeie n lc tdapgitaa yin lield
Fall 2003
h
9
Coupon Bond Valuation: Another Example
Consider a 2 year U.S. Treasury Note with annual coupon rate of 8% (coupon paid semiannually) and face value $1000. Suppose the bond yield is 10%.
• Dollar returns from holding a bond for a certain period ➢ Coupon income ➢ Capital gain/loss
• One-period holding period return
HPR CouIp no cn o C maepgia t( aio n llo r ss)
• Some terminology
➢ P0(C) < F sell at a discount.
➢ P0(C) = F sell at par. ➢ P0(C) > F sell at a premium. • Inverse relation between bond prices and interest rates
• Bond issuers ➢ Federal government ➢ Private Corporations ➢ Government agencies (in the US) ➢ Municipal governments
• Default
Fall 2003
h
3
Valuing a Bond: An Example
Face Value
$1000
Market PrBiblioteka Baiduce today = ?
• How much is this bond worth? • Coupon rate? • Current yield?
Fall 2003
h
4
Valuing a Bond: An Example (Cont’d)
• If the going rate on bonds like this one is 10%, then this bond has a market value of $924.18.
Fall 2003
h
6
Bond Valuation: A Summary
• Bond Value = Present Value of the Coupons + Present Value of the Face Value
If the interest rate is constant, Bond Value = C [1 - 1/(1 + r )t]/r
P0(Bo)n P dV (BoC n)F d 80 80 80 80 801000
10.11.121.131.141.151.15 92.148
Alternatively, P 0 ( Bo )n 8 d 0 PVA5 F ) 1 ( 1 .1 0 5 0 .9 0 1. 2 0 1 04 8 ,
+ F 1/(1 + r )t where: C = Coupon paid each period
r = Rate per period t = Number of periods F = Bond’s face value
Fall 2003
h
7
Bond Valuation: A Summary (Cont’d)
• If a bond has five years to maturity, an $80 annual coupon, and a $1000 face value, its cash flows would look like this:
Time
0
1
2
3
4
5
Coupons
$80 $80 $80 $80 $80