7 Bond Valuation and Stock Valuation

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1、BondandStockValuationNingyueLiu(刘宁悦)BeijingInstituteofTechnologyEmail:ningyueliu@bit.edu.cnInvestmentProductsBondValuationStockValuationHengtaiAipu(300157)planedtoissueadditional17.82million.Theissuepriceis￥57pershareandthecorrespondingPrice-EaringsRatiois99.9

2、2times.Theestimatedpricerangeofthestockbysecurities：GuotaiJunanSeurity：￥37.2-43.61TebonSecurity：￥52.40-58.95EssenceSecurity：￥65-7831BondsandBondValuation•Abondisalegallybindingagreementbetweenaborrowerandalenderthatspecifiesthe:–Par(face)value–Couponrate–Coupo

3、npayment–MaturityDateValueofBonds•Bookvalue•Marketvalue•IntrinsicvalueBondValuation•PrimaryPrinciple:–Valueoffinancialsecurities=PVofexpectedfuturecashflows•Bondvalueis,therefore,determinedbythepresentvalueofthecouponpaymentsandparvalue.•Interestratesareinvers

4、elyrelatedtopresent(i.e.,bond)values.TheBond-PricingEquation•1ThenormalBond-ValuationModel–Thevaluationformulaofthebond,whichwithinstallmentinterestpayment,lumpprinciplepaymentandcompoundingmethod.niFFnIFPtnPtnt1(1RR)(1)t1(1RR)(1)–Acompanyissueda5

5、-yearbondwithaparvalueof¥800,acouponrateof5%,andarequiredyieldof8%,calculatethepriceofthebond?P8005%PVIFA800PVIF8%,58%,58005%3.99278000.6806704.19元TheBond-PricingEquation•2Thebondwithone-timedebtserviceandnon-compoundinterest–fomula:FFinPn(1R)–

6、FengdaCompanyintendstopurchasethebondissuedbyQimingCompany,withaparvalueof¥1,000,foraperiodof5years,couponinterestrateof8%,non-compoundinterest,thecurrentmarketrateis5%,howmuchshouldFengdaCompanytobuyit?P(100010008%5)PVIF14000.78351096.9元5%5，TheBond-Pr

7、icingEquation3.ZeroCouponBonds•Makenoperiodicinterestpayments(couponrate=0%)•Theentireyieldtomaturitycomesfromthedifferencebetweenthepurchasepriceandtheparvalue•Cannotsellformorethanparvalue•Sometimescalledzeroes,deepdiscountbonds,ororiginalissuediscountbonds(

8、OIDs)•TreasuryBillsandprincipal-onlyTreasurystripsaregoodexamplesofzeroesPureDiscountBondsInformationneededforvaluingpurediscountbonds:–Timetomaturity(T)=Maturitydate-today’sdate–F