time value of money Bond valuation

1. PART 1:
TIME VALUE OF MONEY

2. • A concept to understand the values of cash flows
occurred at different points of time.
• Useful for planning future expenditure.
CONCEPT

3. Calculation of Future Value(FV)
•

4. Calculation of Present Value(PV)
•

5. •

6. Even & Uneven Cash Flow
• Even Cash Flow
If all the cash flows in a stream of a cash flow are same,
it is known as even cash flow.
• Uneven Cash Flow
If the cash flows on a stream of a cash flow differ from
one another, it is called uneven cash flow.

7. •
Year
(1)
Cash Flow
(2)
PVIF at i%
(3)
PV
(4=2x3)
1 xx xxx Xxx
2 xx xxx Xxx
3 xx xxx Xxx
TPV xxx

8. •
Year
(1)
Cash Flow
(2)
FVIF at i%
(3)
FV
(4=2x3)
1(n-1) xx xxx Xxx
2(n-2) xx xxx Xxx
3(n-3) xx xxx Xxx
TFV xxx

9. ANNUITY
•

10. •

11. •

12. Amortized Loan
•

13. STEP 2: Amortization Schedule
Year
(1)
Beginning Balance
(2)
PMT
(3)
Interest
(4) =2 x i
Principle
(5) = 3 - 4
Ending Balance
(6) = 2 - 3
1 xx xx xx xxx xxx
2 xx xx xx xxx xxx
. xx xx xx xxx xxx
n xx xx xx xxx 0

14. •
Year
(1)
Beginning Balance
(2)
PMT
(3)
Interest
(4) =2 x i
Principle
(5) = 3 - 4
Ending Balance
(6) = 2 - 3
1 xx xx xx xxx xxx
2 xx xx xx xxx xxx
. xx xx xx xxx xxx
n-1 xx xx xx xxx 0

15. PART 2:
BOND VALUATION & INTEREST RATES

16. Concept of Bond
• A long term source of financing issues by a
government of corporation.
• Long term contract between company and investor.
• The value of bond depends upon the face value,
maturity period, coupon interest rate and market
interest rate.

17. Features of Bond
• Par Value i.e. Rs, 1000
• Fixed Compound Interest Rate
• Fixed Maturity Rate
• No Voting Right
• Call Provision
• Convertibility

18. Valuation of Various Types of Bonds
•

19. •

20. Bond Value Measures
•

21. •

22. •