公司理财第十版PPTChap007(49页PPT).pptx

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1、Chapter 7Chapter 7Interest Rates and Interest Rates and Bond ValuationBond ValuationMcGraw-Hill/IrwinCopyright 2013 by The McGraw-Hill Companies,Inc.All rights reserved.Key Concepts and SkillsKnow the important bond features and bond typesUnderstand bond values and why they fluctuateUnderstand bond

2、ratings and what they meanUnderstand the impact of inflation on interest ratesUnderstand the term structure of interest rates and the determinants of bond yields7-2Chapter OutlineBonds and Bond ValuationMore about Bond FeaturesBond RatingsSome Different Types of BondsBond MarketsInflation and Intere

3、st RatesDeterminants of Bond Yields7-3Bond DefinitionsBondPar value(face value)Coupon rateCoupon paymentMaturity dateYield or Yield to maturity7-4Present Value of Cash Flows as Rates ChangeBond Value=PV of coupons+PV of parBond Value=PV of annuity+PV of lump sumAs interest rates increase,present val

4、ues decreaseSo,as interest rates increase,bond prices decrease and vice versa7-5Valuing a Discount Bond with Annual CouponsConsider a bond with a coupon rate of 10%and annual coupons.The par value is$1,000,and the bond has 5 years to maturity.The yield to maturity is 11%.What is the value of the bon

5、d?Using the formula:B=PV of annuity+PV of lump sumB=1001 1/(1.11)5/.11+1,000/(1.11)5B=369.59+593.45=963.04Using the calculator:N=5;I/Y=11;PMT=100;FV=1,000CPT PV=-963.047-6Valuing a Premium Bond with Annual CouponsSuppose you are reviewing a bond that has a 10%annual coupon and a face value of$1000.T

6、here are 20 years to maturity,and the yield to maturity is 8%.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=-1,196.367-7Graphical Relationship Between Pric

7、e and Yield-to-maturity(YTM)Bond PriceYield-to-maturity(YTM)7-8Bond Prices:Relationship Between Coupon and YieldIf YTM=coupon rate,then par value=bond priceIf YTM coupon rate,then par value bond priceWhy?The discount provides yield above coupon ratePrice below par value,called a discount bondIf YTM

8、coupon rate,then par value bond priceWhy?Higher coupon rate causes value above parPrice above par value,called a premium bond7-9The Bond Pricing Equation7-10Example 7.1Find present values based on the payment periodHow many coupon payments are there?What is the semiannual coupon payment?What is the

9、semiannual yield?B=701 1/(1.08)14/.08+1,000/(1.08)14=917.56Or PMT=70;N=14;I/Y=8;FV=1,000;CPT PV=-917.567-11Interest Rate RiskPrice RiskChange in price due to changes in interest ratesLong-term bonds have more price risk than short-term bondsLow coupon rate bonds have more price risk than high coupon

10、 rate bondsReinvestment Rate RiskUncertainty concerning rates at which cash flows can be reinvestedShort-term bonds have more reinvestment rate risk than long-term bondsHigh coupon rate bonds have more reinvestment rate risk than low coupon rate bonds7-12Figure 7.27-13Computing Yield to MaturityYiel

11、d to Maturity(YTM)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,enter N,PV,PMT,and FV,remembering the sign convention(PMT an

12、d FV need to have the same sign,PV the opposite sign)7-14YTM with Annual CouponsConsider a bond with a 10%annual coupon rate,15 years to maturity and a par value of$1,000.The current price is$928.09.Will the yield be more or less than 10%?N=15;PV=-928.09;FV=1,000;PMT=100CPT I/Y=11%7-15YTM with Semia

13、nnual CouponsSuppose a bond with a 10%coupon rate and semiannual coupons,has a face value of$1,000,20 years to maturity and is selling for$1,197.93.Is the YTM more or less than 10%?What is the semiannual coupon payment?How many periods are there?N=40;PV=-1,197.93;PMT=50;FV=1,000;CPT I/Y=4%(Is this t

14、he YTM?)YTM=4%*2=8%7-16Table 7.17-17Current Yield vs.Yield to MaturityCurrent Yield=annual coupon/priceYield to maturity=current yield+capital gains yieldExample:10%coupon bond,with semiannual coupons,face value of 1,000,20 years to maturity,$1,197.93 priceCurrent yield=100/1,197.93=.0835=8.35%Price

15、 in one year,assuming no change in YTM=1,193.68Capital gain yield=(1,193.68 1,197.93)/1,197.93=-.0035=-.35%YTM=8.35-.35=8%,which is the same YTM computed earlier7-18Bond Pricing TheoremsBonds of similar risk(and maturity)will be priced to yield about the same return,regardless of the coupon rateIf y

16、ou know the price of one bond,you can estimate its YTM and use that to find the price of the second bondThis is a useful concept that can be transferred to valuing assets other than bonds7-19Bond Prices with a SpreadsheetThere is a specific formula for finding bond prices on a spreadsheetPRICE(Settl

17、ement,Maturity,Rate,Yld,Redemption,Frequency,Basis)YIELD(Settlement,Maturity,Rate,Pr,Redemption,Frequency,Basis)Settlement and maturity need to be actual datesThe redemption and Pr need to be input as%of par valueClick on the Excel icon for an example7-20Differences Between Debt and EquityDebtNot an

18、 ownership interestCreditors do not have voting rightsInterest is considered a cost of doing business and is tax deductibleCreditors have legal recourse if interest or principal payments are missedExcess debt can lead to financial distress and bankruptcyEquityOwnership interestCommon stockholders vo

19、te for the board of directors and other issuesDividends are not considered a cost of doing business and 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 merely due to debt since it

20、has no debt7-21The Bond IndentureContract between the company and the bondholders that includesThe basic terms of the bondsThe total amount of bonds issuedA description of property used as security,if applicableSinking fund provisionsCall provisionsDetails of protective covenants7-22Bond Classificat

21、ionsRegistered vs.Bearer FormsSecurityCollateral secured by financial securitiesMortgage secured by real property,normally land or buildingsDebentures unsecuredNotes unsecured debt with original maturity less than 10 yearsSeniority7-23Bond Characteristics and Required ReturnsThe coupon rate depends

22、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-callable bond7-24Bond Ratings Investment Quality

23、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 to changes in circumstancesMoodys Baa and S&P BBB capacity to pay is adequate,adverse conditions will h

24、ave more impact on the firms ability to pay7-25Bond Ratings-SpeculativeLow GradeMoodys Ba and BS&P BB and BConsidered possible that the capacity to pay will degenerate.Very Low GradeMoodys C(and below)and S&P C(and below)income bonds with no interest being paid,or in default with principal and inter

25、est in arrears7-26Government BondsTreasury 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 SecuritiesD

26、ebt of state and local governmentsVarying degrees of default risk,rated similar to corporate debtInterest received is tax-exempt at the federal level7-27Example 7.4A 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)

27、=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%7-28Zero Coupon BondsMake no periodic interest payments(coupon rate=0%)The entire yield-to-maturity comes from the difference

28、between the purchase price and the par valueCannot sell for more than par valueSometimes called zeroes,deep discount bonds,or original issue discount bonds(OIDs)Treasury Bills and principal-only Treasury strips are good examples of zeroes7-29Floating-Rate BondsCoupon rate floats depending on some in

29、dex 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 substantially from the yield-to-maturityCoupons may have a“collar”the rate cannot go above a specified“ceiling”or below a speci

30、fied“floor”7-30Other Bond TypesDisaster bondsIncome bondsConvertible bondsPut bondsThere are many other types of provisions that can be added to a bond and many bonds have several provisions it is important to recognize how these provisions affect required returns7-31SukukSukuk are bonds have been c

31、reated to meet a demand for assets that comply with Shariah,or Islamic lawShariah does not permit the charging or paying of interestSukuk are typically bought and held to maturity,and are extremely illiquid7-32Bond MarketsPrimarily over-the-counter transactions with dealers connected electronicallyE

32、xtremely 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 exception7-33Work the Web ExampleBond quotes are available onlineOne good site is FINRAs Market Da

33、ta CenterClick on the web surfer to go to the siteChoose a company,enter it in the search bar,choose Bond in the drop-down,and see what you can find!7-34Treasury QuotationsHighlighted quote in Figure 7.415 Nov 24 7.5 137.29 137.31 3.9133What is the coupon rate on the bond?When does the bond mature?W

34、hat is the bid price?What 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?7-35Clean vs.Dirty PricesClean price:quoted priceDirty price:price actually paid=quoted price plus accrued interestExample:C

35、onsider a T-bond with a 4%semiannual yield and a clean price of$1,282.50:Number of days since last coupon=61Number of days in the coupon period=184Accrued interest=(61/184)(.04*1000)=$13.26Dirty price=$1,282.50+$13.26=$1,295.76So,you would actually pay$1,295.76 for the bond7-36Inflation and Interest

36、 RatesReal rate of interest change in purchasing powerNominal rate of interest quoted rate of interest,change in actual number of dollarsThe ex ante nominal rate of interest includes our desired real rate of return plus an adjustment for expected inflation7-37The Fisher EffectThe Fisher Effect defin

37、es the relationship between real rates,nominal rates,and inflation(1+R)=(1+r)(1+h),whereR=nominal rater=real rateh=expected inflation rateApproximationR=r+h7-38Example 7.5If 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

38、=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.7-39Term Structure of Interest RatesTerm structure is the relationship between time to maturity and yields,all else equalIt is importan

39、t 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-term yields are higher than short-term yieldsInverted downward-sloping;long-term yields are lower than short-term yields7-40Figure 7.6

40、 Upward-Sloping Yield Curve7-41Figure 7.6 Downward-Sloping Yield Curve7-42Figure 7.7Insert new Figure 7.7 here7-43Factors Affecting Bond YieldsReal rate of interestExpected future inflation premiumInterest rate risk premiumDefault risk premium Taxability premium Liquidity premium7-44Quick QuizHow do

41、 you 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

42、return on bonds?7-45Ethics IssuesIn 1996,allegations were made against Moodys that it was issuing ratings on bonds it had not been hired to rate,in order to pressure issuers to pay for their service.The government conducted an inquiry,but charges of antitrust violations were dropped.Even though no l

43、egal action was taken,does an ethical issue exist?7-46Comprehensive ProblemWhat is the price of a$1,000 par value bond with a 6%coupon rate paid semiannually,if the bond is priced to yield 5%and it has 9 years to maturity?What would be the price of the bond if the yield rose to 7%.What is the curren

44、t yield on the bond if the YTM is 7%?7-47End of Chapter7-481、每一个成功者都有一个开始。勇于开始，才能找到成功的路。11月-2211月-22Tuesday,November 8,20222、成功源于不懈的努力，人生最大的敌人是自己怯懦。07:50:3607:50:3607:5011/8/2022 7:50:36 AM3、每天只看目标，别老想障碍。11月-2207:50:3607:50Nov-2208-Nov-224、宁愿辛苦一阵子，不要辛苦一辈子。07:50:3607:50:3607:50Tuesday,November 8,2022

45、5、积极向上的心态，是成功者的最基本要素。11月-2211月-2207:50:3607:50:36November 8,20226、生活总会给你另一个机会，这个机会叫明天。08十一月20227:50:36上午07:50:3611月-227、人生就像骑单车，想保持平衡就得往前走。十一月227:50上午11月-2207:50November 8,20228、业余生活要有意义，不要越轨。2022/11/87:50:3607:50:3608 November 20229、我们必须在失败中寻找胜利，在绝望中寻求希望。7:50:36上午7:50上午07:50:3611月-2210、一个人的梦想也许不值钱，但一个人的努力很值钱。11/8/2022 7:50:36 AM07:50:3608-11月-2211、在真实的生命里，每桩伟业都由信心开始，并由信心跨出第一步。11/8/2022 7:50 AM11/8/2022 7:50 AM11月-2211月-22谢谢大家谢谢大家