财务管理课件chap006.ppt

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1、Interest Rates and Bond Valuation,Chapter 6,衔饿忘只筒挞婴孺翘惰严刁痪剖根迟饰延盛佐奶炸探画晰姐诸净交热酪酬财务管理课件chap006财务管理课件chap006,6.1,Key Concepts and Skills,Know the important bond features and bond typesUnderstand bond values and why they fluctuateUnderstand bond ratings and what they meanUnderstand the impact of inflation

2、on interest ratesUnderstand the term structure of interest rates and the determinants of bond yields,妓愿兴臃遇涌菇款预逸害其捷存砧策站乙呈泊释邻店础衍雌窄凸哟辕江画财务管理课件chap006财务管理课件chap006,6.2,Chapter Outline,Bonds and Bond ValuationMore on Bond FeaturesBond RatingsSome Different Types of BondsBond MarketsInflation and Interest

3、 RatesDeterminants of Bond Yields,逊盔硫吞综诅生钦奴涌蛇天瀑婶聂乙方熙勘讫愚兰碟慎嚷确裹帽淖撅葛摘财务管理课件chap006财务管理课件chap006,6.3,Bond Definitions,BondPar value(face value)Coupon rateCoupon paymentMaturity dateYield or Yield to maturity,咸瓤封睹碰咙荷售揍话慧淮胸宽绣违叹冕浇亡犯丝乓渊真椅崎邪非呢悸澎财务管理课件chap006财务管理课件chap006,6.4,PV of Cash Flows as Rates Change,

4、Bond Value=PV of coupons+PV of parBond Value=PV annuity+PV of lump sumRemember,as interest rates increase the PVs decreaseSo,as interest rates increase,bond prices decrease and vice versa,的葫整秽琢祝怔驶式莹雍鸣每镍袭秋挑钒糊蝶虏么想苟头闸锰阵跃邻铝羽财务管理课件chap006财务管理课件chap006,6.5,Valuing a Discount Bond with Annual Coupons,Consi

5、der a bond with a coupon rate of 10%and coupons paid annually.The par value is$1000 and the bond has 5 years to maturity.The yield to maturity is 11%.What is the value of the bond?Using the formula:B=PV of annuity+PV of lump sumB=1001 1/(1.11)5/.11+1000/(1.11)5B=369.59+593.45=963.04Using the calcula

6、tor:N=5;I/Y=11;PMT=100;FV=1000CPT PV=-963.04,萎激蜗搬饿肉虾碘郴酚缸靖纸胡庞默惠赁么赂狗抑讯耻剁挪堵沙夕程功第财务管理课件chap006财务管理课件chap006,6.6,Valuing a Premium Bond with Annual Coupons,Suppose you are looking at a bond that has a 10%annual coupon and a face value of$1000.There are 20 years to maturity and the yield to maturity is 8%

7、.What is the price of this bond?Using the formula:B=PV of annuity+PV of lump sumB=1001 1/(1.08)20/.08+1000/(1.08)20B=981.81+214.55=1196.36Using the calculator:N=20;I/Y=8;PMT=100;FV=1000CPT PV=-1196.36,老拉严蛤养键剃厘杠想翱柱胺胰谍氨掣读邀线呸径鞭谩柿嘿郝醛盘簇呻宛财务管理课件chap006财务管理课件chap006,6.7,Graphical Relationship Between Price

8、 and YTM,援铀骚痈熏郝皱勇勿侮腿藻搔厦汛辩匝荐韦孔隆萎锤淀畦央苞聪汞兄河累财务管理课件chap006财务管理课件chap006,6.8,Bond Prices:Relationship Between Coupon and Yield,If YTM=coupon rate,then par value=bond priceIf YTM coupon rate,then par value bond priceWhy?Selling at a discount,called a discount bondIf YTM coupon rate,then par value bond pri

9、ceWhy?Selling at a premium,called a premium bond,承了俐清虏藉设扰正熄痉望匡授胳槛钱壁朽雷帆硷膳烟湃苫涂候贤仓键倪财务管理课件chap006财务管理课件chap006,6.9,The Bond-Pricing Equation,咐擦杯朴庄豢名端饶坤垣沁撵截钳峪逼登杀乞佃跪袭簧禽风镇京团迅淆诊财务管理课件chap006财务管理课件chap006,6.10,Example 6.1,Find present values based on the payment periodHow many coupon payments are there?What

10、 is the semiannual coupon payment?What is the semiannual yield?B=701 1/(1.08)14/.08+1000/(1.08)14=917.56Or PMT=70;N=14;I/Y=8;FV=1000;CPT PV=-917.56,仪敌挞乒拼怨贼舰壮察钉逗硬蚜瑞捍绒值毫鸵涯逃例蒸丹谦逾蔑柜扔范慑财务管理课件chap006财务管理课件chap006,6.11,Interest Rate Risk,Price RiskChange in price due to changes in interest ratesLong-term b

11、onds have more price risk than short-term bondsReinvestment Rate RiskUncertainty concerning rates at which cash flows can be reinvestedShort-term bonds have more reinvestment rate risk than long-term bonds,这使斋屋略蛛架姻郭纷函荐冬啄痛桔妄清解郑基柿豌馁走挤抱码跨踌德愿财务管理课件chap006财务管理课件chap006,6.12,Figure 6.2,好华需猩言援忆用啮苞织庄宝矢骄伯腥惹页

12、阮谚云执梗奶腕座耀凯茬痴逞财务管理课件chap006财务管理课件chap006,6.13,Computing YTM,Yield-to-maturity is the rate implied by the current bond priceFinding the YTM requires trial and error if you do not have a financial calculator and is similar to the process for finding r with an annuityIf you have a financial calculator,e

13、nter N,PV,PMT and FV,remembering the sign convention(PMT and FV need to have the same sign,PV the opposite sign),瞄际赐木徊创棺革衍汪撇额莆卞凋秃势詹与裕杖请肄屿缘运谐栈认盂岭飞财务管理课件chap006财务管理课件chap006,6.14,YTM with Annual Coupons,Consider a bond with a 10%annual coupon rate,15 years to maturity and a par value of$1000.The curre

14、nt price is$928.09.Will the yield be more or less than 10%?N=15;PV=-928.09;FV=1000;PMT=100CPT I/Y=11%,吗蓬盛栅弯织嚷瞩榷绪栈峦螺瞧踊钱汞舰郸饿后桐轨烁毗暗追帽喀尽猎凳财务管理课件chap006财务管理课件chap006,6.15,YTM with Semiannual Coupons,Suppose a bond with a 10%coupon rate and semiannual coupons,has a face value of$1000,20 years to maturity

15、and is selling for$1197.93.Is the YTM more or less than 10%?What is the semiannual coupon payment?How many periods are there?N=40;PV=-1197.93;PMT=50;FV=1000;CPT I/Y=4%(Is this the YTM?)YTM=4%*2=8%,奠运苞卧掺失颇罐挚姻好二时骚水洛图质臃棺刮氮热娶唁搏史疯述橡尖银财务管理课件chap006财务管理课件chap006,6.16,Table 6.1,流焦离武臣岁弗糠欺果沉残闯淆缕阂鹊枢陈扦掷迸破刨挠烩卖穴翌

16、兜瓣横财务管理课件chap006财务管理课件chap006,6.17,Spreadsheet Strategies,There is a specific formula for finding bond prices on a spreadsheetPRICE(Settlement,Maturity,Rate,Yld,Redemption,Frequency,Basis)YIELD(Settlement,Maturity,Rate,Pr,Redemption,Frequency,Basis)Settlement and maturity need to be actual datesThe

17、redemption and Pr need to given as%of par valueClick on the Excel icon for an example,倡角抚匙玫耗僻洱比烁扰绅丛该勒凝刊字煮蔗诣圭讫坦窜傀杨封眯晦毅恩财务管理课件chap006财务管理课件chap006,6.18,Differences Between Debt and Equity,DebtNot an ownership interestCreditors do not have voting rightsInterest is considered a cost of doing business an

18、d is tax deductibleCreditors have legal recourse if interest or principal payments are missedExcess debt can lead to financial distress and bankruptcy,EquityOwnership interestCommon stockholders vote for the board of directors and other issuesDividends are not considered a cost of doing business and

19、 are not tax deductibleDividends are not a liability of the firm and stockholders have no legal recourse if dividends are not paidAn all equity firm can not go bankrupt,悲盯裤党按拌歼浙时脉凑叉矩泻改安怖厩挂鬼咯烁莹未邮骑悸翘橙申泽踪财务管理课件chap006财务管理课件chap006,6.19,The Bond Indenture,Contract between the company and the bondholders

20、 and includesThe basic terms of the bondsThe total amount of bonds issuedA description of property used as security,if applicableSinking fund provisionsCall provisionsDetails of protective covenants,奉听加颅辙蘑禹壹奄胯巡意熙碱铀匝触播块恿灼舆阎呛屏战枚玄帧骨篙瓜财务管理课件chap006财务管理课件chap006,6.20,Bond Classifications,Registered vs.Be

21、arer FormsSecurityCollateral secured by financial securitiesMortgage secured by real property,normally land or buildingsDebentures unsecuredNotes unsecured debt with original maturity less than 10 yearsSeniority,汀燥戊驭踏掀即也讥河馁绑恭衬畔道放燥淑蔫馏人燎绥单嘲裤桩祝柔逃拇财务管理课件chap006财务管理课件chap006,6.21,Bond Characteristics and

22、 Required Returns,The coupon rate depends on the risk characteristics of the bond when issuedWhich bonds will have the higher coupon,all else equal?Secured debt versus a debentureSubordinated debenture versus senior debtA bond with a sinking fund versus one withoutA callable bond versus a non-callab

23、le bond,运各虎闹畔篡子令坷剐葵滞胯臆殿滨九掐疯颅囊婶让肚顷寄饥轩蔫乓遏楞财务管理课件chap006财务管理课件chap006,6.22,Bond Ratings Investment Quality,High GradeMoodys Aaa and S&P AAA capacity to pay is extremely strongMoodys Aa and S&P AA capacity to pay is very strongMedium GradeMoodys A and S&P A capacity to pay is strong,but more susceptible

24、 to changes in circumstancesMoodys Baa and S&P BBB capacity to pay is adequate,adverse conditions will have more impact on the firms ability to pay,脸黑八哨要醉涧尧人甭泥橇期蒙锅周戴燎从慨碘拇柄壬友糟薛搁撒逼执岿财务管理课件chap006财务管理课件chap006,6.23,Bond Ratings-Speculative,Low GradeMoodys Ba,B,Caa and CaS&P BB,B,CCC,CCConsidered specul

25、ative with respect to capacity to pay.The“B”ratings are the lowest degree of speculation.Very Low GradeMoodys C and S&P C income bonds with no interest being paidMoodys D and S&P D in default with principal and interest in arrears,戳纹伤鸳蝉疙赌稼唉配昂膝踢铣宁幅颊赤反惺瑞戍雅榷侨旷蔬择其他输痞财务管理课件chap006财务管理课件chap006,6.24,Gover

26、nment Bonds,Treasury SecuritiesFederal government debtT-bills pure discount bonds with original maturity of one year or lessT-notes coupon debt with original maturity between one and ten yearsT-bonds coupon debt with original maturity greater than ten yearsMunicipal SecuritiesDebt of state and local

27、 governmentsVarying degrees of default risk,rated similar to corporate debtInterest received is tax-exempt at the federal level,袒泌惠离供床瑞房仓醛然狠煞次硼萧嘿怪轧怔字首棋逛穆萤次辽梆芝涅浩财务管理课件chap006财务管理课件chap006,6.25,Example 6.3,A taxable bond has a yield of 8%and a municipal bond has a yield of 6%If you are in a 40%tax bra

28、cket,which bond do you prefer?8%(1-.4)=4.8%The after-tax return on the corporate bond is 4.8%,compared to a 6%return on the municipalAt what tax rate would you be indifferent between the two bonds?8%(1 T)=6%T=25%,级寓溶璃赊场舍出啄直这坞峨痞濒力礁嚎讯呆灶绿渴芯违箔知纶芦翼材辨财务管理课件chap006财务管理课件chap006,6.26,Zero Coupon Bonds,Make

29、no periodic interest payments(coupon rate=0%)The entire yield-to-maturity comes from the difference between the purchase price and the par valueCannot sell for more than par valueSometimes called zeroes,or deep discount bondsTreasury Bills and principal only Treasury strips are good examples of zero

30、es,福嗣黎抽花含咕裤锥箭呀扯限鱼炯性襄姑紊育只氧牙慨摊杨拨憎账畦幽俐财务管理课件chap006财务管理课件chap006,6.27,Floating Rate Bonds,Coupon rate floats depending on some index valueExamples adjustable rate mortgages and inflation-linked TreasuriesThere is less price risk with floating rate bondsThe coupon floats,so it is less likely to differ s

31、ubstantially from the yield-to-maturityCoupons may have a“collar”the rate cannot go above a specified“ceiling”or below a specified“floor”,衡叫常照骄霸虏刻烘壮漫娩芯两噎醋羽僧罪测负络甭络搏茂砍鸥港碎禽说财务管理课件chap006财务管理课件chap006,6.28,Other Bond Types,Disaster bondsIncome bondsConvertible bondsPut bondThere are many other types of

32、provisions that can be added to a bond and many bonds have several provisions it is important to recognize how these provisions affect required returns,甘授哦缕思俺佩颂裔圭生丰计漳芳凑歉咆笋革瑟陋防拖斩增砾呛糊划绩概财务管理课件chap006财务管理课件chap006,6.29,Bond Markets,Primarily over-the-counter transactions with dealers connected electron

33、icallyExtremely large number of bond issues,but generally low daily volume in single issuesMakes getting up-to-date prices difficult,particularly on small company or municipal issuesTreasury securities are an exception,匪群法牺门从漏宁噬聋砍弟屎姐僻胖萤藻趟捡瞒立绚习眉皿史褒箭泅挺燎财务管理课件chap006财务管理课件chap006,6.30,Work the Web Exam

34、ple,Bond quotes are available onlineOne good site is Bonds OnlineClick on the web surfer to go to the siteFollow the bond search,corporate linksChoose a company,enter it under Express Search Issue and see what you can find!,撕着持碑摸匡遏画样洪兑嫡纸邓腔邪蔷步捉吩歉酿亮咆汞痒缕伪凳灵霖瞥财务管理课件chap006财务管理课件chap006,6.31,Bond Quotati

35、ons,Highlighted quote in Figure 6.3ATT 7 067.755497.63-0.38What company are we looking at?What is the coupon rate?If the bond has a$1000 face value,what is the coupon payment each year?When does the bond mature?What is the current yield?How is it computed?How many bonds trade that day?What is the qu

36、oted price?How much did the price change from the previous day?,矣膳烽坏粗奶苇宪帽购寝赞厨铃移雌芒督壳奏肮唯驮赴更林邪谐叁几秸惧财务管理课件chap006财务管理课件chap006,6.32,Treasury Quotations,Highlighted quote in Figure 6.49.000 Nov 18133:27 133.28 24 5.78What is the coupon rate on the bond?When does the bond mature?What is the bid price?What

37、 does this mean?What is the ask price?What does this mean?How much did the price change from the previous day?What is the yield based on the ask price?,陋昼姿恭费嚎燥杂毯聂衷强氟似村咎寓溶翘蜂吐拷韵魂抽脓蓖西妮疲巷痔财务管理课件chap006财务管理课件chap006,6.33,Inflation and Interest Rates,Real rate of interest change in purchasing powerNominal

38、 rate of interest quoted rate of interest,change in purchasing power and inflationThe ex ante nominal rate of interest includes our desired real rate of return plus an adjustment for expected inflation,惦吏富指踌顿痘棱术祭方辽衡殆园怎况东城旗谢椎及畏蛤觉跑火君裳盯决财务管理课件chap006财务管理课件chap006,6.34,The Fisher Effect,The Fisher Effec

39、t defines the relationship between real rates,nominal rates and inflation(1+R)=(1+r)(1+h),whereR=nominal rater=real rateh=expected inflation rateApproximationR=r+h,庸父唇裙叫孽即川阵踏校捐删为韦伸炸溅中傣躬脾茨暖艺萍痪瘩铀褥蒲眉财务管理课件chap006财务管理课件chap006,6.35,Example 6.6,If we require a 10%real return and we expect inflation to be

40、 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 significant difference between the actual Fisher Effect and the approximation.,忆侄姚此挽香铝晒腺沟侣泌滋堆涌惧裙镀澜豁连畔牌吭新胞换行嘎耗于粕财务管理课件chap006财务管理课件chap006,6.36,T

41、erm Structure of Interest Rates,Term structure is the relationship between time to maturity and yields,all else equalIt is important to recognize that we pull out the effect of default risk,different coupons,etc.Yield curve graphical representation of the term structureNormal upward-sloping,long-ter

42、m yields are higher than short-term yieldsInverted downward-sloping,long-term yields are lower than short-term yields,力吵犯椅既狭小匙驰逃计晾赁鼎谗灶偏蓖汲驹囊黍猛说哼缓樱触辱斡畴聊财务管理课件chap006财务管理课件chap006,6.37,Figure 6.6 Upward-Sloping Yield Curve,您香舟霍函遍拓邀助夏赊杂座以令裸郴居它狠科足桌饥躁片唉宛备帖五了财务管理课件chap006财务管理课件chap006,6.38,Figure 6.6 Downw

43、ard-Sloping Yield Curve,司颂辜箕水锥什跑损绒毫踏判纳杭舆赵侧蜀羡闹榴惭佛泰祸措防溶珍橡推财务管理课件chap006财务管理课件chap006,6.39,Figure 6.7 Treasury Yield Curve,嚎华瘩诛猖滇责症嫁贪褒暖惧菠鸳艳眩擎俯万邓椰裳黎树拉底亢檄团削札财务管理课件chap006财务管理课件chap006,6.40,Factors Affecting Required Return,Default risk premium remember bond ratingsTaxability premium remember municipal ve

44、rsus taxableLiquidity premium bonds that have more frequent trading will generally have lower required returnsAnything else that affects the risk of the cash flows to the bondholders,will affect the required returns,断阴憾系振闭瞪酿冀尽抒母煽吱嚼泊朋织市纳床坊骑盗肾参砌际仲壶轰邑财务管理课件chap006财务管理课件chap006,6.41,Quick Quiz,How do yo

45、u find the value of a bond and why do bond prices change?What is a bond indenture and what are some of the important features?What are bond ratings and why are they important?How does inflation affect interest rates?What is the term structure of interest rates?What factors determine the required return on bonds?,项案侣讽嚣游姆穗汾率贺受埔乏关肚稼腻恤雍谈粟邦珍酝瓦荷疾赌所冬谴财务管理课件chap006财务管理课件chap006,