公司理财培训资料英文版

BondMarketandAlternativeInvestmentRules,3.1ValuationofBonds3.2TheTermStructureofInterestRates3.3AlternativeInvestmentRules(1)ThePaybackPeriodRule(2)TheAverageAccountingReturn(3)TheInternalRateofReturn(4)TheProfitabilityIndex3.4WhyUseNetPresentValue?(RWJCh.5,6),3.1ValuationofBonds,Example1：Supposeweobservethefollowingbondpricesfordefault-freezerocouponbonds(purediscountbond,withfacevalue$1,000)：Howarethebondpricesrelatedwithinterestrates?,1yearzero:Price=9262yearzero:Price=8423yearzero:Price=7584yearzero:Price=683,1yearbond2yearbond3yearbond4yearbond,y1,y2,y3,y4,i1,i2?,i4?,i3?,(maturitydate),ThePresentValueFormulasforBonds,PureDiscountBonds,LevelCouponBonds,Consols,forT-maturitybondswithfacevalueF.,Sucharateyisknownastheyieldtomaturity(YTM).Theyieldtomaturityisacomplicatedaverageofdifferentratesofinterest.Itcanbeausefulsummarymeasure.,(3.1),(3.2),(3.3),YieldtoMaturity,Example1.(continued):wecanconvertbondpricesinto“yieldtomaturity”()hence,yn=yieldofbondswithnperiodsastimetomaturity,alsocalled“spotrates.”Plotynagainsttimetomaturity(n)”yieldcurve”tosummarizeinformationaboutbondprices(diagram1).,3.2TheTermStructureofInterestRates,Frombondprices,wecancomputeyields,plotthe“yieldcurve”,andcomputetheimpliedforwardrates,.,implied“forwardrates”,yieldcurveor“spotrates”,ForwardRates,isthe“break-even”interestratethatequatesthereturnsonan-periodbondtothatofa(n1)periodbondrolledoverintoaone-yearbondinyearn.Forexample,(geometricmean)or,soasanapproximation(arithmeticmean).Similarly,ForecastofFutureInterest,Canweuseforwardratesfntoforecastfutureshort-terminterestratesin,alsocalled“shortrates”？Assumethattheinvestmenthorizonisoneyear,andinvestorsareriskneutral.Example2:Considertwoinvestmentalternatives：,(A)buy1-yearzero-couponbond(safe,norisk).,(B)buy2-yearzero-couponbondandsellitattheendof1styear(risky,subjecttopriceriskattheendof1styear.),842?1000,9261000,(A),(B),i2=?,PureExpectationHypothesis,Expectedreturnof(A)Expectedreturnof(B)Assumethatinvestorsarerisk-neutral.Thesetwoexpectedreturnsshouldbethesame(donotworryaboutdifferentrisksinvolvedin(A)and(B)：andweknowSo,henceTheforwardratesaremarketexpectationsoffutureshort-terminterestrates.ThisiscalledthePureExpectationsHypothesis：.(3.4),LiquidityPreferenceHypothesis,AssumeinvestorsareRiskaverse.Stillwithone-yearinvestmenthorizon(preferencefor“liquidity”).Since(B)isriskier,(B)shouldhavehigherexpectedreturntoattractinvestors：.Hence.TheLiquidityPreferenceHypothesis:+riskpremium=f2.Ingeneral,fn-riskpremium=.(3.5),3.3AlternativeInvestmentRules,Howlongdoesittaketheprojectto“payback”itsinitialinvestment?PaybackPeriod=numberofyearstorecoverinitialcostsMinimumAcceptanceCriteria:setbymanagementRankingCriteria:setbymanagement,(1)ThePaybackPeriodRule,(1)ThePaybackPeriodRule(continued),Disadvantages:IgnoresthetimevalueofmoneyIgnorescashflowsafterthepaybackperiodBiasedagainstlong-termprojectsRequiresanarbitraryacceptancecriteriaAprojectacceptedbasedonthepaybackcriteriamaynothaveapositiveNPVAdvantages:EasytounderstandBiasedtowardliquidity,TheDiscountedPaybackPeriodRule,Howlongdoesittaketheprojectto“payback”itsinitialinvestmenttakingthetimevalueofmoneyintoaccount?Bythetimeyouhavediscountedthecashflows,youmightaswellcalculatetheNPV.,(2)TheAverageAccountingReturnRule,Anotherattractivebutfatallyflawedapproach.RankingCriteriaandMinimumAcceptanceCriteriasetbymanagementDisadvantages:IgnoresthetimevalueofmoneyUsesanarbitrarybenchmarkcutoffrateBasedonbookvalues,notcashflowsandmarketvaluesAdvantages:TheaccountinginformationisusuallyavailableEasytocalculate,(3)TheInternalRateofReturn(IRR)Rule,IRR:thediscountthatsetsNPVtozeroMinimumAcceptanceCriteria:AcceptiftheIRRexceedstherequiredreturn.RankingCriteria:SelectalternativewiththehighestIRRReinvestmentassumption:AllfuturecashflowsassumedreinvestedattheIRR.Disadvantages:Doesnotdistinguishbetweeninvestingandborrowing.IRRmaynotexistortheremaybemultipleIRRProblemswithmutuallyexclusiveinvestmentsAdvantages:Easytounderstandandcommunicate,(3)TheInternalRateofReturn:Example,Example3Considerthefollowingproject:,Theinternalrateofreturnforthisprojectis19.44%,TheNPVPayoffProfileforThisExample,IfwegraphNPVversusdiscountrate,wecanseetheIRRasthex-axisintercept.,ProblemswiththeIRRApproach,MultipleIRRs.AreWeBorrowingorLending?TheScaleProblem.TheTimingProblem.,MultipleIRRs,Example4:TherearetwoIRRsforthisproject:,Whichoneshouldweuse?,TheScaleProblem,Wouldyourathermake100%or50%onyourinvestments?Whatifthe100%returnisona$1investmentwhilethe50%returnisona$1,000investment?,TheTimingProblem,Thepreferredprojectinthiscasedependsonthediscountrate,nottheIRR.,Example5:,TheTimingProblem,Example5:,CalculatingtheCrossoverRate,ComputetheIRRforeitherproject“A-B”or“B-A”,Example5:,MutuallyExclusivevs.IndependentProject,MutuallyExclusiveProjects:onlyONEofseveralpotentialprojectscanbechosen,e.g.acquiringanaccountingsystem.RANKallalternativesandselectthebestone.IndependentProjects:acceptingorrejectingoneprojectdoesnotaffectthedecisionoftheotherprojects.MustexceedaMINIMUMacceptancecriteria.,(4)TheProfitabilityIndex(PI)Rule,MinimumAcceptanceCriteria:AcceptifPI1RankingCriteria:SelectalternativewithhighestPIDisadvantages:ProblemswithmutuallyexclusiveinvestmentsAdvantages:MaybeusefulwhenavailableinvestmentfundsarelimitedEasytounderstandandcommunicateCorrectdecisionwhenevaluatingindependentprojects,3.4WhyUseNetPresentValue?,AcceptingpositiveNPVprojectsbenefitsshareholders.NPVusescashflowsNPVusesallthecashflowsoftheprojectNPVdiscountsthecashflowsproperly,TheNet