Bonds and Their Valuation: Key Features of Bonds Bond Valuation Measuring Yield Assessing Risk
Bonds and Their Valuation: Key Features of Bonds Bond Valuation Measuring Yield Assessing Risk
Bonds and Their Valuation: Key Features of Bonds Bond Valuation Measuring Yield Assessing Risk
CHAPTER 4
Bonds and Their Valuation
0 1 2 n
r
...
Value CF1 CF2 CFn
ri = r* + IP + LP + MRP + DRP
rd = 10%. M
1,000
837
rd = 13%.
775
30 25 20 15 10 5 0
Find rd
INT ... + INT M
VB 1 + +
1 + r d 1 + r d 1 + r d
N N
90 ... + 90 1,000
887 1 + 10 +
1 + r d 1+ r d 1 + r d
10
Definitions
Change in price
Capital gains yield =
Beginning price
$90
Current yield = $887
= 0.1015 = 10.15%.
4 - 23
Value
1,500 10-year
1,000 1-year
500
0 rd
0% 5% 10% 15%
4 - 26
Semiannual Bonds
Spreadsheet Functions
for Bond Valuation
Financial performance
Debt ratio
Coverage ratios, such as
interest coverage ratio or
EBITDA coverage ratio
Current ratios
(More…)
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(More…)
4 - 44
Other factors
Earnings stability
Regulatory environment
Potential product liability
Accounting policies
4 - 45
Bankruptcy