(2):level—coupon bonds（票面利息）: Information needed to value level-coupon bonds: ①Coupon payment dates and time to maturity (T) ;②Coupon payment (C) per period and Face value (F) ;③Discount rate. （文字说明对照PPT） ?CCC?FPV???...????21?r（1? r））?(1?r)T?(1?r)T(3):consols（金边债券/永久公债）: a consol is perpetuity. consols are bonds that never stop paying a coupon, have no financial maturity date, and therefore never mature.
5.3 Bond Concepts
First principles: value of financial securities=pv of expected future cash flows (1) bond prices and market interest rates:
That bond prices fall with a rise in interest rates and rise with a fall in interest rates.
(2) When coupon rate = YTM(Yield to Maturity), price = par value. (3) bond maturity and bond’s price change: A bond with longer maturity has higher relative (%) price change than one with shorter maturity when interest rate (YTM) changes. All other features are identical. (4) bond coupon and bond’s price change:
A lower coupon bond has a higher relative price change than a higher coupon bond when YTM changes. All other features are identical.
5.4 The Present Value of Common Stocks (1)Dividends versus Capital Gains
12(2)Valuation of Different Type of Stocks
0121.Zero Growth(零增长)
0
2.Constant Growth（固定增长率） Div1P0?
r?g
?DivN?1?
???T3.Differential Growth（变动增长率）
C?(1?g1)??r?g2?? P?1???T?Nr?g(1?r)(1?r) ?1?5.5 Estimates ofParameters in the Dividend-Discount Model
1)Where does gcome from?G=Retentionratio*Return on retained earnings 2)Where does rcome from?R=Div1/P0+g
Div3DivDivP?????3(1?r)(1?r)(1?r)DivP?r
5.6
The Dividend Growth Model and NPVGO Model P= EPS/(r )+NPVGO 一、
1.Cash Cow
2.Net Present Value (per share) of Growth Opportunities 二、
Calculate NPVGO 三、
Does a higher Retention Ratio Benefit Shareholders? P= Div/(R-g)
g =RR*ROE(Where RR is Retention Ratio) Div=Payoutratio*EPS=(1-RR)*EPS
p =Div/(R-g)=((1-RR)*EPS)/(R-(RR*ROE))
ROE>R,Higher retention ratio ,better for shareholders ROE ? The price earnings ratio is a.k.a the multiple – Calculated as current stock price divided by annual EPS – The Wall Street Journal uses last 4 quarter’s earnings (2)Price/Cash Flow Ratio ? cash flow = net income + depreciation = cash flow from operations or operating cash flow (3)Price/Sales ? current stock price divided by annual sales per share (4)Price/Book (a.k.a Market to Book Ratio) ? price divided by book value of equity, which is measured as assets - liabilities Price per shareP/E ratio?EPS 第6章 6.1Why Use Net Present Value 1、 Estimating NPV: – 1. Estimate future cash flows: how much? and when? – (Future cash flows of real-world projects are invariably . In other words, cash flows can only be estimated , rather than known . Imagine that the managers of Alpha expect the cash floe of the project to be $107 next year. That is , the cash flow could be higher , say $117 ,or lower, say $97.) – 2. Estimate discount rate – 3. Estimate initial costs ? 2、Minimum Acceptance Criteria: Accept if NPV > 0 ? Ranking Criteria: Choose the highest NPV ? 3、three Good Attributes of the NPV Rule ? 1. Uses cash flows ? 2. Uses ALL cash flows of the project ? 3. Discounts ALL cash flows properly 6.2 The payback period rule 1. Definition: Payback period=number of years to recover initial costs 2.Criterion: Acceptance---set by management Ranking---set by managent 3.Problems with the Payback Method: (1)Does not consider the timing of the cash flows within the payback period. (2)Ignores all cash flows occurring after the payback period. (3)Arbitrary standard for payback period. 4.Advantage of payback period (1)Easy to understand and quick decision. (2)Quick result. (3)Small projects. (4)Small firm difficult to finance. 6.3 The discounted payback period rule The discounted payback period method:折现回收期法 Aware of the pitfalls of payback,some decision makers use a variant called the discounted payback period method. 缺陷：At first glance discounted payback may seem like an attractive alternative,but on closer inspection we see that it has some of the same major falws as payback.Like payback,discounted payback first requires us to make a somewhat magical choice of an arbitrary cutoff period,and then it ignores all of the flows after that date 6.5 The internal rate of return Definition(下定义)：IRR is the rate that causes the NPV of the project to be zero。 General criterion（一般准则）：Accept the project if IRR is greater than the discount rate. Reject the project if IRR is less than the discount rate.若内部收益率大于贴现率，项目可以接受；若内部收益率小于贴现率，项目不能接受。这就是基本的内部收益率法则 6.6 Problems with the IRR Approach 1.Independent Projects: accepting or rejecting one project does not affect the decision of the other projects. 独立项目：是其接收或者放弃的决策不受其他项目投资决策影响的投资项目。 Mutually Exclusive Projects: only one of several potential projects can be chosen. 互斥项目：是只能在一些潜在的项目选择只有一个。 2.Two general problems affecting both independent and mutually exclusive projects Problem 1:Investing or Financing 1)Investing Accept: IRRs >discount rate 内部收益率>贴现率 Reject :IRRs< discount rate 2)Financing Accept: IRRs < discount rate 内部收益率<贴现率 Reject : IRRs > discount rate Problem 2:Multiple Rates of Return Mixture 1) NPV Rule： Accept a project if the NPV is greater than zero; Reject a project if NPV is less than zero. NPV=-cost+ ?i?1nCi i(1?r)2) Modified IRR (MIRR) 3)The Guarantee against Multiple IRRs General Rules Number of Flows IRRs First cash flow is negative and 1 all remaining cash flows are positive. IRR Criterion Accept if IRR>r Reject if IRR 1 Accept if IRR
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