财务管理专业英语BondandStock课件

1、2022/9/26Chap4 Bond and Stock2022/9/24Chap4 Bond and StockChapter Outline1. Source of financing 2. Basic elements of bond3. Bond evaluation 4. Bond features and classification5. Bond ratings6. Bond Markets7. Evaluation principle of Stocks8. Features of Common stocks and preferred stocks2022/9/26Chap

2、ter Outline1. Source of fi2022/9/261. Source of financingInternal financing: Future contributions made by owners Retained earningsExternal financing: Debt financing: loan; bond Equity financing: stock2022/9/241. Source of financin2022/9/262. Basic elements of bond Bond(债券)Par value (面值)Coupon rate(券

3、面利率)Coupon payment(利息支付)Maturity date(到期日)Time to maturity(到期时间)Yield to maturity(到期收益率)2022/9/242. Basic elements of 2022/9/26Yield to maturityIt refers to the rate of return anticipated on a bond if it is held until maturity.Similar to average annual rate of returnUse it as the discount rate that

4、makes the PV of future cash flows equal to the PV of the bond2022/9/24Yield to maturityIt r2022/9/26PV of Cash Flows as Rates ChangeValuation principle: PV of bond = PV of future cash flows Bond Value = PV of coupons + PV of parBond Value = PV annuity + PV of lump sumRemember, as interest rates incr

5、ease the PVs decreaseSo, as interest rates increase, bond prices decrease and vice versa2022/9/24PV of Cash Flows as R2022/9/263. Bond evaluationWhere: F: face vale C: coupon paymentsr: yield to maturity t: time to maturity (usually in years )Bond-Pricing EquationBond value = C 1-1/ (1+r) t /r + F/(

6、1+r)t2022/9/243. Bond evaluationWhe2022/9/26 Bond valueConsider a coupon bond with face vale 1000 maturing in 10 years, coupon rate 10%, suppose yield to maturity is 10%, what is the value of this coupon bond?001291010010010010010002022/9/24 Bond2022/9/26SolutionsFirst, under 10% yield to maturity,

7、the present value of the 1000 paid in 10 years is:Present value = 1000/(1+0.10)10 = 385.5 Second, the 100 coupons continue for ten years; the present value of this annuity is:Annuity present value = 100 (1-1/1.1010)/0.10 = 614.5We add the value of the two parts together to get the bonds value:Value

8、of the bond = 385.5 + 614.5 = 1000 ()2022/9/24SolutionsFirst, under2022/9/26Valuing a Discount Bond with Annual CouponsConsider 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

9、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 = 963.042022/9/24Valuing a Discount Bo2022/9/26Valuing a Premium Bond with Annual CouponsSuppose you are looking at a bond that has a 10% annual coupon and a face value of $1000.

10、 There 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 = 1196.362022/9/24Valuing a Premium Bon2022/9/26Graphical Relationship Between Price and

11、YTM2022/9/24Graphical Relationshi2022/9/26Bond Prices: Relationship Between Coupon and YieldIf 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 priceWhy?Selling at a pre

12、mium, called a premium bond2022/9/24Bond Prices: Relation2022/9/26Table : Value of a bond2022/9/24Table : Value of a bo2022/9/264. Bond features and classification Differences Between Debt and EquityDebtNot an ownership interestCreditors do not have voting rightsInterest is considered a cost of doin

13、g 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 vote for the board of directors and other issuesDividends are not considered a cost of doing

14、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 bankrupt2022/9/244. Bond features and 2022/9/26The Bond Indenture(债券契约)Contract between the company and the bondholders and incl

15、udesThe basic terms of the bonds(债券的基本条款)The total amount of bonds issued(债券发行总量)A description of property used as security, if applicable(对用作担保的财产的描述)Sinking fund provisions(偿付条款)Call provisions(赎回条款): callable vs. non-callableDetails of protective covenants(保护性条款的细节)2022/9/24The Bond Indenture(债券2

16、022/9/26Protective covenantsPositive protective covenants Must maintain collateral or mortgage in good condition Must maintain working capital at or above certain levelNegative protective covenants Can not issue new debt before the old being repaid Can not sell major asset without consent from lende

17、rs 2022/9/24Protective covenantsP2022/9/26Bond ClassificationsRegistered(记名债券) vs. Bearer Forms(不记名债券)Secured(有担保的) and unsecured(无担保的)Seniority(偿付顺序): senior bond(优先); subordinated bond(次级)Issuer(发行主体): government bond; corporate bondCredit rating(信用等级)：A, B,C,D ect.2022/9/24Bond ClassificationsR20

18、22/9/26Bond Characteristics and Required ReturnsThe 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 unsecuredSubordinated debenture versus senior debt2022/9/24Bond Characteristics 2022/9/265. Bond Ra

19、tings Investment Quality(投资质量)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 ade

20、quate, adverse conditions will have more impact on the firms ability to pay2022/9/245. Bond Ratings Inv2022/9/26Bond Ratings Speculative(投机) (fallen angels)Low GradeMoodys Ba, B, Caa and CaS&P BB, B, CCC, CCConsidered speculative with respect to capacity to pay. The “B” ratings are the lowest degree

21、 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 arrears2022/9/24Bond Ratings Specul2022/9/26Investment vs. speculative2022/9/24Investment vs. specul2022/9/26BuffettGreat master of investmentPrincipl

22、e of investment: The first rule is not to lose. The second rule is not to forget the first rule. Timing of buying stock: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. Alert of risk: Only when the tide goes out do you discover whos been swimming

23、 naked. 2022/9/24BuffettGreat master o2022/9/26SorosCapital predatorFounder of quantum fundSpeculate on currency marketTwo genius have one thing in common: Charity: It is a shame to die with great fortune.2022/9/24SorosCapital predator2022/9/26Other Bond TypesGovernment bonds: Treasury SecuritiesFed

24、eral 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 years Municipal SecuritiesDebt of state and local governmentsVarying degrees of de

25、fault risk, rated similar to corporate debt2022/9/24Other Bond TypesGover2022/9/26Other Bond TypesZero coupon bondsMake 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 val

26、ueSometimes called zeroes, or deep discount bonds2022/9/24Other Bond TypesZero 2022/9/26Floating rate bondsCoupon 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 le

27、ss likely to differ substantially from the yield-to-maturityCoupons may have a “collar” the rate cannot go above a specified “ceiling” or below a specified “floor”Other Bond Types2022/9/24Floating rate bondsOt2022/9/26Other Bond TypesDisaster bondsIncome bondsConvertible bondsPut bondThere are many

28、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 returns2022/9/24Other Bond TypesDisas2022/9/266. Bond MarketsPrimarily over-the-counter transactions with dealers connected electronicallyExt

29、remely 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 exception2022/9/246. Bond MarketsPrimar2022/9/26Quiz: Part oneHow do you find the value of a bond

30、?What is a bond indenture and what are some of the important features?What are bond ratings and why are they important?2022/9/24Quiz: Part oneHow do 2022/9/26 7. Evaluation principle of stocksCash Flows to Stockholders If you buy a share of stock, you can receive cash in two waysThe company pays div

31、idendsYou sell your shares, either to another investor in the market or back to the company2022/9/24 7. Evaluation princi2022/9/26PV of StockAs with bonds, the price of the stock is the present value of these expected cash flows PV of stock = PV of dividends + PV of selling price2022/9/24PV of Stock

32、As with bo2022/9/26Types of DividendsConstant dividend(固定股利)The firm will pay a constant dividend foreverThis is like preferred stockThe price is computed using the perpetuity formulaConstant dividend growth(固定股利增长率)The firm will increase the dividend by a constant percent every periodSupernormal gr

33、owth(超常增长的股利)Dividend growth is not consistent initially, but settles down to constant growth eventually2022/9/24Types of DividendsCon2022/9/268. Features of Common Stock and preferred stockCommon stock Voting Rights： Proxy voting(代理投票权) Classes of stock Other RightsShare proportionally in declared dividendsShare proportionally in remaining assets during liquidationPreemptive right first shot at new stock issue to maintain proportional ownership if desired2022/9/248. Features of Common20