Time,andCapitalMarkets(微观经济学-华侨大学,Je.pptx
Chapter 15Investment,Investment,Time,and Time,and Capital MarketsCapital Markets1Chapter 1Topics to be DiscussednStocks Versus FlowsnPresent Discounted ValuenThe Value of a BondnThe Net Present Value Criterion for Capital Investment Decisions2Chapter 1Topics to be DiscussednAdjustments for RisknInvestment Decisions by ConsumersnIntertemporal Production Decisions-Depletable ResourcesnHow are Interest Rates Determined?3Chapter 1IntroductionnCapitallChoosing an input that will contribute to output over a long period of timelComparing the future value to current expenditures4Chapter 1Stocks Versus FlowsnStocklCapital is a stock measurement.uThe amount of capital a company owns5Chapter 1Stocks Versus FlowsnFlowslVariable inputs and outputs are flow measurements.uAn amount per time period6Chapter 1Present Discounted Value(PDV)nDetermining the value today of a future flow of incomelThe value of a future payment must be discounted for the time period and interest rate that could be earned.7Chapter 1Present Discounted Value(PDV)nFuture Value(FV)8Chapter 1Present Discounted Value(PDV)nQuestionlWhat impact does R have on the PDV?9Chapter 1PDV of$1 Paid in the Future0.01$0.990$0.980$0.951$0.905$0.820$0.7420.02 0.980 0.961 0.906 0.820 0.673 0.5520.03 0.971 0.943 0.863 0.744 0.554 0.4120.04 0.962 0.925 0.822 0.676 0.456 0.3080.05 0.952 0.907 0.784 0.614 0.377 0.2310.06 0.943 0.890 0.747 0.558 0.312 0.174Interest Rate1 Year2 Years3 Years4 Years5 Years6 Years10Chapter 1PDV of$1 Paid in the Future0.07 0.935 0.873 0.713 0.508 0.258 0.1310.08 0.926 0.857 0.681 0.463 0.215 0.0990.09 0.917 0.842 0.650 0.422 0.178 0.0750.10 0.909 0.826 0.621 0.386 0.149 0.0570.15 0.870 0.756 0.497 0.247 0.061 0.0150.20 0.833 0.694 0.402 0.162 0.026 0.004Interest Rate1 Year2 Years3 Years4 Years5 Years6 Years11Chapter 1Present Discounted Value(PDV)nValuing Payment StreamslChoosing a payment stream depends upon the interest rate.12Chapter 1Two Payment StreamsPayment Stream A:$100$100 0Payment Stream B:$20$100$100Today1 Year2 Years13Chapter 1Two Payment Streamsn 14Chapter 1PDV of Payment StreamsPDV of Stream A:$195.24$190.90$186.96$183.33PDV of Stream B:205.94193.54182.57172.77R=.05R=.10R=.15R=.20Why does the PDV of A relative to B increase as R increases and vice versa for B?15Chapter 1The Value of Lost EarningsnPDV can be used to determine the value of lost income from a disability or death.16Chapter 1The Value of Lost EarningsnScenariolHarold Jennings died in an auto accident January 1,1986 at 53 years of age.lSalary:$85,000lRetirement Age:6017Chapter 1The Value of Lost EarningsnQuestionlWhat is the PDV of Jennings lost income to his family?uMust adjust salary for predicted increase(g)lAssume an 8%average increase in salary for the past 10 years18Chapter 1The Value of Lost EarningsnQuestionlWhat is the PDV of Jennings lost income to his family?uMust adjust for the true probability of death(m)from other causeslDerived from mortality tables19Chapter 1The Value of Lost EarningsnQuestionlWhat is the PDV of Jennings lost income to his family?uAssume R=9%lRate on government bonds in 198320Chapter 1The Value of Lost Earningsn 21Chapter 1Calculating Lost Wages1986$85,000.9911.000$84,235198791,800.990.91783,339198899,144.989.84282,5611989107,076.988.77281,6711990115,642.987.70880,8101991124,893.986.65080,0431992134,884.985.59679,1851993145,675.984.54778,408YearW0(1+g)t(1-mt)1/(1+R)tW0(1+g)t(1-mt)/(1+R)t22Chapter 1The Value of Lost EarningsnFinding PDVlThe summation of column 4 will give the PDV of lost wages($650,252)lJennings family could recover this amount as compensation for his death.23Chapter 1The Value of a BondnDetermining the Price of a BondlCoupon Payments=$100/yr.for 10 yrs.lPrincipal Payment=$1,000 in 10 yrs.24Chapter 1Present Value ofthe Cash Flow from a BondInterest RatePDV of Cash Flow($thousands)00.050.100.150.200.51.01.52.0Why does the value declineas the rate increases?25Chapter 1The Value of a BondnPerpetuitieslPerpetuities are bonds that pay out a fixed amount of money each year,forever.26Chapter 1Effective Yield on a BondnCalculating the Rate of Return From a Bond27Chapter 1Effective Yield on a BondnCalculating the Rate of Return From a Bond28Chapter 1Effective Yield on a BondInterest Rate00.050.100.150.200.51.01.52.0PDV of Payments(Value of Bond)($thousands)Why do yields differamong different bonds?The effective yield is the interestrate that equates the presentvalue of a bonds payment stream with the bonds market price.29Chapter 1The Yields on Corporate BondsnIn order to calculate corporate bond yields,the face value of the bond and the amount of the coupon payment must be known.nAssumelIBM and Polaroid both issue bonds with a face value of$100 and make coupon payments every six months.30Chapter 1The Yields on Corporate BondsnClosing prices for each July 23,1999:IBM 53/8 09 5.830 92 -11/2 Polaroid 111/2 0610.8 80 106 -5/8 a:coupon payments for one year($5.375)b:maturity date of bond(2009)c:annual coupon/closing price($5.375/92)d:number traded that day(30)e:closing price(92)f:change in price from previous day(-11/2)a b c d e f31Chapter 1The Yields on Corporate BondsnThe IBM bond yield:lAssume annual paymentsl2009-1999=10 years32Chapter 1The Yields on Corporate BondsnThe Polaroid bond yield:Why was PolaroidR*greater?33Chapter 1The Net Present Value Criterionfor Capital Investment DecisionsnIn order to decide whether a particular capital investment is worthwhile a firm should compare the present value(PV)of the cash flows from the investment to the cost of the investment.34Chapter 1nNPV CriterionlFirms should invest if the PV exceeds the cost of the investment.The Net Present Value Criterionfor Capital Investment Decisions35Chapter 1n The Net Present Value Criterionfor Capital Investment Decisions36Chapter 1nThe Electric Motor Factory(choosing to build a$10 million factory)l8,000 motors/month for 20 yrsuCost=$42.50 eachuPrice=$52.50uProfit=$10/motor or$80,000/monthuFactory life is 20 years with a scrap value of$1 millionlShould the company invest?The Net Present Value Criterionfor Capital Investment Decisions37Chapter 1nAssume all information is certain(no risk)lR=government bond rateThe Net Present Value Criterionfor Capital Investment Decisions38Chapter 1Net Present Value of a FactoryInterest Rate,R00.050.100.150.20-6Net Present Value($millions)-4-20246810The NPV of a factory is the presentdiscounted value of all the cashflows involved in building andoperating it.R*=7.539Chapter 1nReal versus Nominal Discount RateslAdjusting for the impact of inflationlAssume price,cost,and profits are in real termsuInflation=5%The Net Present Value Criterionfor Capital Investment Decisions40Chapter 1nReal versus Nominal Discount RateslAssume price,cost,and profits are in real termsuTherefore,lP=(1.05)(52.50)=55.13,Year 2 P=(1.05)(55.13)=57.88.lC=(1.05)(42.50)=44.63,Year 2 C=.lProfit remains$960,000/yearThe Net Present Value Criterionfor Capital Investment Decisions41Chapter 1nReal versus Nominal Discount RateslReal R=nominal R-inflation=9-5=4The Net Present Value Criterionfor Capital Investment Decisions42Chapter 1Net Present Value of a FactoryInterest Rate,R00.050.100.150.20-6Net Present Value($millions)-4-20246810If R=4%,the NPV ispositive.The companyshould invest inthe new factory.43Chapter 1nNegative Future Cash FlowslInvestment should be adjusted for construction time and losses.The Net Present Value Criterionfor Capital Investment Decisions44Chapter 1nElectric Motor FactorylConstruction time is 1 yearu$5 million expenditure todayu$5 million expenditure next yearlExpected to lose$1 million the first year and$0.5 million the second yearlProfit is$0.96 million/yr.until year 20lScrap value is$1 millionThe Net Present Value Criterionfor Capital Investment Decisions45Chapter 1n The Net Present Value Criterionfor Capital Investment Decisions46Chapter 1Adjustments for RisknDetermining the discount rate for an uncertain environment:lThis can be done by increasing the discount rate by adding a risk-premium to the risk-free rate.uOwners are risk averse,thus risky future cash flows are worth less than those that are certain.47Chapter 1Adjustments for RisknDiversifiable Versus Nondiversifiable RisklDiversifiable risk can be eliminated by investing in many projects or by holding the stocks of many companies.lNondiversifiable risk cannot be eliminated and should be entered into the risk premium.48Chapter 1Adjustments for RisknMeasuring the Nondiversifiable Risk Using the Capital Asset Pricing Model(CAPM)lSuppose you invest in the entire stock market(mutual fund)urm=expected return of the stock marketurf=risk free rateurm-rf=risk premium for nondiversifiable risk 49Chapter 1Adjustments for RisknMeasuring the Nondiversifiable Risk Using the Capital Asset Pricing Model(CAPM)lCalculating Risk Premium for One Stock50Chapter 1Adjustments for RisknQuestionlWhat is the relationship between the nondiversifiable risk and the value of the asset beta?51Chapter 1Adjustments for RisknGiven beta,we can determine the correct discount rate to use in computing an assets net present value:52Chapter 1Adjustments for RisknDetermining betalStockuEstimated statistically for each company53Chapter 1Adjustments for RisknDetermining betalFactoryuWeighted average of expected return on the companys stock and the interest on the debtlExpected return depends on betauCaution:The investment should be typical for the company54Chapter 1Investment Decisions by ConsumersnConsumers face similar investment decisions when they purchase a durable good.lCompare future benefits with the current purchase cost55Chapter 1nBenefits and Cost of Buying a CarlS=value of transportation services in dollarslE=total operating cost/yrlPrice of car is$20,000lResale value of car is$4,000 in 6 yearsInvestment Decisions by Consumers56Chapter 1nBenefits and CostInvestment Decisions by Consumers57Chapter 1Choosing an Air ConditionernBuying a new air conditioner involves making a trade-off.lAir Conditioner AuLow price and less efficient(high operating cost)58Chapter 1Choosing an Air ConditionernBuying a new air conditioner involves making a trade-off.lAir Conditioner BuHigh price and more efficientlBoth have the same cooling powerlAssume an 8 year life59Chapter 1Choosing an Air Conditionern 60Chapter 1Choosing an Air ConditionernShould you choose A or B?lDepends on the discount rateuIf you borrow,the discount rate would be high lProbably choose a less expensive and inefficient unituIf you have plentiful cash,the discount rate would be low.lProbably choose the more expensive unit61Chapter 1Intertemporal ProductionDecisions-Depletable ResourcesnFirms production decisions often have intertemporal aspects-production today affects sales or costs in the future.62Chapter 1nScenariolYou are given an oil well containing 1000 barrels of oil.lMC and AC=$10/barrellShould you produce the oil or save it?Intertemporal ProductionDecisions-Depletable Resources63Chapter 1nScenariolPt=price of oil this yearlPt+1=price of oil next yearlC=extraction costslR=interest raten Intertemporal ProductionDecisions-Depletable Resources64Chapter 1nDo not produce if you expect its price less its extraction cost to rise faster than the rate of interest.nExtract and sell all of it if you expect price less cost to rise at less than the rate of interest.nWhat will happen to the price of oil?Intertemporal ProductionDecisions-Depletable Resources65Chapter 1Price of an Exhaustible ResourceTimePriceQuantityPriceccMarginal ExtractionCostTPTP0P-cP0Demand66Chapter 1nIn a competitive market,Price-MC must rise at exactly the rate of interest.nWhy?lHow would producers react if:uP-C increases faster than R?uP-C increases slower than R?Price of an Exhaustible Resource67Chapter 1nNoticelP MCuIs this a contradiction to the competitive rule that P=MC?lHint:What happens to the opportunity cost of producing an exhaustible resource?Price of an Exhaustible Resource68Chapter 1nP=MClMC=extraction cost+user costlUser cost=P-marginal extraction costPrice of an Exhaustible Resource69Chapter 1nHow would a monopolist choose their rate of production?lThey will produce so that marginal revenue revenue less marginal cost rises at exactly the rate of interest,orl(MRt+1-c)=(1+R)(MRt-c)Price of an Exhaustible Resource70Chapter 1nThe monopolist is more conservationist than a competitive industry.lThey start out charging a higher price and deplete the resources more slowly.Price of an Exhaustible ResourceResource Production by a Monopolist71Chapter 1How Depletable AreDepletable Resources?Crude oil.4 to.5Natural gas.4 to.5Uranium.1 to.2Copper.2 to.3Bauxite.05 to.2Nickel.1 to.2Iron Ore.1 to.2Gold.05 to.1ResourceUser Cost/Competitive Price72Chapter 1nThe market structure and changes in market demand have had a very dramatic impact on resource prices over the past few decades.nQuestionlWhy would oil and natural gas have such a high user cost ratio compared to the other resources?How Depletable AreDepletable Resources?73Chapter 1How Are Interest Rates Determined?nThe interest rate is the price that borrowers pay lenders to use their funds.lDetermined by supply and demand for loanable funds.74Chapter 1SHouseholds supply funds toconsume more in the future;the higher the interest rate,themore they supply.Supply and Demand for Loanable FundsQuantity ofLoanable FundsRInterestRateDTR*Q*DT=DH+DF andequilibrium interestrate is R*.DHDFDH and DF,the quantity demanded for loanable funds by households(H)and firms,respectively,varies inverselywith the interest rate.75Chapter 1Changes In The EquilibriumSDTR*Q*During a recession interestrates fall due to adecrease in the demand for loanable funds.DTQ1R1Quantity ofLoanable FundsRInterestRate76Chapter 1Changes In The EquilibriumSDTR*Q*When the federal government runs largebudget deficits the demand for loanablefunds increase.Q2R2DTQuantity ofLoanable FundsRInterestRate77Chapter 1Changes In The EquilibriumSDTR*Q*When the FederalReserve increasesthe money supply,thesupply of loanablefunds increases.SR1Q1Quantity ofLoanable FundsRInterestRate78Chapter 1nA Variety of Interest Rates1)Treasury Bill Rate2)Treasury Bond Rate3)Discount RateHow Are Interest Rates Determined?79Chapter 1nA Variety of Interest Rates4)Commercial Paper Rate 5)Prime Rate6)Corporate Bond RateHow Are Interest Rates Determined?80Chapter 1SummarynA firms holding of capital is measured as a stock,but inputs of labor and raw materials are flows.nWhen a firm makes a capital investment,it spends money now,so that it can earn profits in the future.81Chapter 1SummarynThe present discounted value(PDV)of$1 paid n years from now is$1/(1+R)n.nA bond is a contract in which a lender agrees to pay the bondholder a stream of money.82Chapter 1SummarynFirms can decide whether to undertake a capital investment by applying the NPV criterion.nThe discount rate that a firm uses to calculate the NPV for an investment should be the opportunity cost of capital.83Chapter 1SummarynAn adjustment for risk can be made by adding
