Fundamentals of Corporate Finance Chapter 6 Bond Valuation.
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Transcript of Fundamentals of Corporate Finance Chapter 6 Bond Valuation.
![Page 1: Fundamentals of Corporate Finance Chapter 6 Bond Valuation.](https://reader033.fdocuments.us/reader033/viewer/2022061411/56649daf5503460f94a9d0c7/html5/thumbnails/1.jpg)
Fundamentals of Corporate Finance
Chapter 6
Bond Valuation
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Overview of Lecture
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Corporate Finance in the News
Insert a current news story here to frame the material you will cover in the lecture.
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Bonds and Bond Valuation
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Bonds and Bond Valuation
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Example of a Bond
You should use a relevant example of a bond from your own environment to illustrate the characteristics of a bond.
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Bond Values and Yields
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Bond Values and Yields
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Bond Valuation
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Bond Values and Yields
Pixie plc example
PV of Face Value:
Present value = £1,000/1.0810 = £1,000/2.1589 = £463.19
PV of Annuity:
Annuity present value = £80 (1 1/1.0810)/.08
= £80 (1 1/2.1589)/.08 = £80 6.7101 = £536.81
Bond Value:
PV of Face Value + PV of Annuity = £463.19 + £536.81 = £1,000
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Bond Values and Yields
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Bond Values and Yields
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Bond Value Formula
If a bond has (1) a face value of F paid at maturity, (2) a coupon of C paid per period, (3) t periods to maturity, and (4) a yield of r per period, its value is:
Bond value [1 1/ (1 ) ] / / (1 ) Present value Present valueBond value of the coupons of the face amount
t tC r r F r
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Example 6.1Semi-Annual Coupons
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Example 6.1Semi-Annual Coupons
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Interest Rate Risk
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Interest Rate Risk
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Example 6.2Current Events
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Example 6.2Current Events
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Example 6.2Current Events
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Example 6.3Bond Yields
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Bond Yields
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Spreadsheet Strategies
You should show students how to calculate bond values and yields with a spreadsheet. It is also a good time to introduce your students to Solver and Goal Seek (or their equivalents).
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More about Bond FeaturesExample 6.2 – ICO Bond
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Bond Features
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Terms of a Bond
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Bond Ratings
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Different Types of Bond
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Bond Markets
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Work the Web
Visit Euronext to see how bonds are being reported in real time.
You should also visit FT.Com to see the new bond issues in the previous week and discuss these.
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Inflation and Nominal Rates
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The Fisher Effect
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Example 6.4The Fisher Effect
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Example 6.4The Fisher Effect
From the Fisher effect, we have:
1+ (1+ ) (1+ )1.10 1.081.1880
R r h
Therefore, the nominal rate will actually be closer to 19 per cent.
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The Term Structure of Interest Rates
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Terminology
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The Term Structure of Interest Rates
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The Term Structure of Interest Rates
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Bond Yields and the Yield Curve
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Work the Web
You should visit FT.Com to discuss the most current Yield Curve for your region.
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Activities for this Lecture
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Thank You