Chap005

Chapter Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

5.1 Definition of a Bond ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

5.2 How to Value Bonds ,[object Object],[object Object],[object Object],[object Object]

Pure Discount Bonds ,[object Object],[object Object],[object Object],[object Object]

Pure Discount Bonds ,[object Object],[object Object],[object Object],[object Object],Present value of a pure discount bond at time 0:

Pure Discount Bond: Example ,[object Object]

Level Coupon Bonds ,[object Object],[object Object],[object Object],[object Object],[object Object]

Consols ,[object Object],[object Object],[object Object]

5.3 Bond Concepts ,[object Object],[object Object],[object Object],[object Object]

YTM and Bond Value 800 1000 1100 1200 1300 0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.1 Discount Rate Bond Value When the YTM < coupon, the bond trades at a premium. When the YTM = coupon, the bond trades at par . When the YTM > coupon, the bond trades at a discount. 6 3/8

Bond Example Revisited (p.133)

Computing Yield to Maturity (p.134) ,[object Object]

5.4 The Present Value of Common Stocks ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Case 1: Zero Growth ,[object Object],[object Object]

Case 2: Constant Growth Since future cash flows grow at a constant rate forever, the value of a constant growth stock is the present value of a growing perpetuity: Assume that dividends will grow at a constant rate, g , forever, i.e., . . .

Case 3: Differential Growth ,[object Object],[object Object],[object Object],[object Object],[object Object]

5.5 Estimates of Parameters ,[object Object],[object Object],[object Object]

Where does R come from? ,[object Object],Rearrange and solve for R:

Where does R come from? ,[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object]

Two polar cases ,[object Object],[object Object]

5.6 Growth Opportunities ,[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object]

Example ,[object Object],[object Object],[object Object],[object Object]

Growth in Earnings and Dividends versus Growth Opportunities ,[object Object]

Dividends or Earnings : Which to discount? ,[object Object]

The No-Dividend Firm ,[object Object],[object Object]

5.7 The Dividend Growth Model and the NPVGO Model ,[object Object]

5.7 The Dividend Growth Model and the NPVGO Model ,[object Object],[object Object],[object Object]

Solution ,[object Object],[object Object],[object Object],[object Object]

The Dividend-Growth Model ,[object Object],[object Object]

Solution ,[object Object],[object Object],[object Object],[object Object],[object Object]

5.8 Price-Earnings Ratio ,[object Object],[object Object]

5.8 Price-Earnings Ratio (P/E ratio) ,[object Object],[object Object],[object Object],[object Object]

Chap005

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Chap005