财务管理(英文第十三版)Ch 4_sheena

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1、Fundamentals of Financial Management/12th Edition1Fundamentals of Financial Management/12th Edition2 Distinguish among the various terms used to express value,including liquidation value,going-concern value,book value,market value,and intrinsic value.Value bonds,preferred stocks,and common stocks.Ca

2、lculate the rates of return(or yields)of different types of long-term securities.List and explain a number of observations regarding the behavior of bond prices.Fundamentals of Financial Management/12th Edition3represents the amount a firm could be sold for as a continuing operating business.represe

3、nts the amount of money that could be realized if an asset or group of assets is sold separately from its operating organization.Fundamentals of Financial Management/12th Edition4(2)a firm:total assets minus liabilities and preferred stock as listed on the balance sheet.represents either(1)an asset:

4、the accounting value of an asset-the assets cost minus its accumulated depreciation;Fundamentals of Financial Management/12th Edition5represents the price a security“ought to have”based on all factors bearing on valuation.represents the market price at which an asset trades.In general,the intrinsic

5、value of an asset=the present value of the stream of expected cash flows discounted at an appropriate required rate of return.Fundamentals of Financial Management/12th Edition7uImportant TermsuTypes of BondsuValuation of BondsuHandling Semiannual CompoundingFundamentals of Financial Management/12th

6、Edition8 Definition:uA is a long-term debt instrument issued by a corporation or government.uDebtorsCreditorsFundamentals of Financial Management/12th Edition9uThe of a bond:is the stated value.In the case of a U.S.bond,the face value is usually$1,000.u The Maturity of a bond:is the time when the co

7、mpany is obligated to pay the bondholder the face value of the bond.Fundamentals of Financial Management/12th Edition10uThe coupons(coupon payments)are the stated interest payment made on bond.uThe bonds is the stated rate of interest;the annual interest payment divided by the bonds face value.Funda

8、mentals of Financial Management/12th Edition11uThe (required rate of return)is dependent on the risk of the bond and is composed of the risk-free rate plus a premium for risk.The principal amount of a bond that is repaid at the end of term is called:A.discount amount.B.face value.C.back-end amount.D

9、.coupon.E.coupon rate.Fundamentals of Financial Management/12th Edition13A is a bond that never matures.It has an infinite life.Cash Flow:Only the fixed annual interest payment of I forever.Fundamentals of Financial Management/12th Edition14A is a bond that never matures.It has an infinite life.(1+k

10、d)1(1+kd)2(1+kd)V=+.+III=S St=1(1+kd)tIor I(PVIFA kd,)V=/Reduced FormFundamentals of Financial Management/12th Edition15Bond P has a$1,000 face value and provides an 8%coupon rate.The appropriate discount rate is 10%.What is the value of the?=$1,000(8%)=.=.=/Reduced Form =/=.Fundamentals of Financia

11、l Management/12th Edition16A is a bond has a finite maturity and the bondholder receive interest payment and face value at maturityCash Flow:not only the fixed annual interest payment,but also the face value at maturity.Fundamentals of Financial Management/12th Edition17A is a bond has a finite matu

12、rity and the bondholder receive interest payment and face value at maturity(1+kd)1(1+kd)2(1+kd)V=+.+II+MVI=S St=1(1+kd)tIV=I(PVIFA kd,)+MV(PVIF kd,)(1+kd)+MVFundamentals of Financial Management/12th Edition18Bond C has a$1,000 face value and provides an 8%annual coupon for 30 years.The appropriate d

13、iscount rate is 10%.What is the value of the coupon bond?=$80(PVIFA10%,30)+$1,000(PVIF10%,30)=$80(9.427)+$1,000(.057)=$754.16 +$57=.Fundamentals of Financial Management/12th Edition19Bond C has a$1,000 face value and provides an 10%annual coupon for 30 years.The appropriate discount rate is 10%.What

14、 is the value of the coupon bond?=$100(PVIFA10%,30)+$1,000(PVIF10%,30)=$100(9.427)+$1,000(.057)=$942.7 +$57 =Fundamentals of Financial Management/12th Edition20Bond C has a$1,000 face value and provides an 12%annual coupon for 30 years.The appropriate discount rate is 10%.What is the value of the co

15、upon bond?=$120(PVIFA10%,30)+$1,000(PVIF10%,30)=$120(9.427)+$1,000(.057)=$1131.24 +$57=YTM=kd If YTM=coupon rate,then par value=bond price If YTM coupon rate,then par value bond price Price below par value,called a discount bond If YTM coupon rate,then par value g(1+ke)1(1+ke)2(1+ke)V=+.+D0(1+g)D0(1

16、+g)=(ke-g)D1D1:Dividend paid at time 1.g:The constant growth rate.ke:Investors required return.D0(1+g)2Fundamentals of Financial Management/12th Edition44Stock CG has an expected growth rate of 8%.Each share of stock just received an annual$3.24 dividend per share.The appropriate discount rate is 15

17、%.What is the value of the?=(1+.08)=/(-g)=/(-.08)=Fundamentals of Financial Management/12th Edition45The assumes that dividends will grow forever at the rate g=0.(1+ke)1(1+ke)2(1+ke)VZG=+.+D1D=keD1D1:Dividend paid at time 1.ke:Investors required return.D2Fundamentals of Financial Management/12th Edi

18、tion46Stock ZG has an expected growth rate of 0%.Each share of stock just received an annual$3.24 dividend per share.The appropriate discount rate is 15%.What is the value of the?=(1+0)=/(-0)=/(-0)=Fundamentals of Financial Management/12th Edition47D0(1+g1)tDn(1+g2)tThe assumes that dividends for ea

19、ch share will grow at two or more different growth rates.(1+ke)t(1+ke)tV=S St=1nS St=n+1+Fundamentals of Financial Management/12th Edition48D0(1+g1)tDn+1Note that the second phase of the assumes that dividends will grow at a constant rate g2.We can rewrite the formula as:(1+ke)t(ke-g2)V=S St=1n+1(1+

20、ke)nFundamentals of Financial Management/12th Edition49Stock GP has an expected growth rate of 16%for the first 3 years and 8%thereafter.Each share of stock just received an annual$3.24 dividend per share.The appropriate discount rate is 15%.What is the value of the common stock under this scenario?

21、Fundamentals of Financial Management/12th Edition50Stock GP has two phases of growth.The first,16%,starts at time t=0 for 3 years and is followed by 8%thereafter starting at time t=3.We should view the time line as two separate time lines in the valuation.0 1 2 3 4 5 6 D1 D2 D3 D4 D5 D6Growth of 16%

22、for 3 yearsGrowth of 8%to infinity!Fundamentals of Financial Management/12th Edition51Note that we can value Phase#2 using the Constant Growth Model 0 1 2 3 D1 D2 D3 D4 D5 D60 1 2 3 4 5 6Growth Phase#1 plus the infinitely long Phase#2Fundamentals of Financial Management/12th Edition52Note that we ca

23、n now replace all dividends from Year 4 to infinity with the value at time t=3,V3!Simpler!V3=D4 D5 D60 1 2 3 4 5 6 D4k-gWe can use this model because dividends grow at a constant 8%rate beginning at the end of Year 3.Fundamentals of Financial Management/12th Edition53Now we only need to find the fir

24、st four dividends to calculate the necessary cash flows.0 1 2 3 D1 D2 D3 V30 1 2 3New Time Line D4k-g Where V3=Fundamentals of Financial Management/12th Edition54Determine the annual dividends.D0=$3.24(this has been paid already)=D0(1+g1)1=$3.24(1.16)1=D0(1+g1)2=$3.24(1.16)2=D0(1+g1)3=$3.24(1.16)3=D

25、3(1+g2)1=$5.06(1.08)1=Fundamentals of Financial Management/12th Edition55Now we need to find the present value of the cash flows.0 1 2 3 3.76 4.36 5.06 780 1 2 3ActualValues 5.46.15-.08 Where$78=Fundamentals of Financial Management/12th Edition56We determine the PV of cash flows.PV()=(PVIF15%,1)=(.8

26、70)=PV()=(PVIF15%,2)=(.756)=PV()=(PVIF15%,3)=(.658)=P3=$5.46 /(.15-.08)=$78 CG ModelPV()=(PVIF15%,3)=(.658)=Fundamentals of Financial Management/12th Edition57D0(1+.16)tD4Finally,we calculate the by summing all the cash flow present values.(1+.15)t(.15-.08)V=S St=13+1(1+.15)nV=$3.27+$3.30+$3.33+$51.

27、32Fundamentals of Financial Management/12th Edition58James Consol Company currently pays a dividend of$1.60 per share on its common stock.The company expects to increase the dividend at a 20%annual rate for the first four years and at a 13%for the next four years,and then grow the dividend at a 7%th

28、ereafter.You require a 16%return to invest in this stock,what value should you place on a share of this stock?Fundamentals of Financial Management/12th Edition591.Determine the expected.2.Replace the intrinsic value(V)with the.3.Solve for the that equates the to the.Steps to calculate the rate of re

29、turn(or yield).Fundamentals of Financial Management/12th Edition60 The market required rate of return on a bond is commonly referred to as the bonds yield to maturity.Yield to maturity(YTM):is the expected rate of return on a bond if bought at its current market price and held to maturity.Fundamenta

30、ls of Financial Management/12th Edition61Determine the Yield-to-Maturity(YTM)for the coupon-paying bond with a finite life.P0=S St=1(1+kd)tI=I(PVIFA kd,)+MV(PVIF kd,)(1+kd)+MVkd=YTMFundamentals of Financial Management/12th Edition62Julie Miller want to determine the YTM for an issue of outstanding b

31、onds at IBM Corporation.IBM has an issue of 10%annual coupon bonds with 15 years left to maturity.The bonds have a current market value of.Fundamentals of Financial Management/12th Edition63=$100(PVIFA9%,15)+$1,000(PVIF9%,15)=$100(8.061)+$1,000(.275)=$806.10+$275.00=Fundamentals of Financial Managem

32、ent/12th Edition64=$100(PVIFA7%,15)+$1,000(PVIF7%,15)=$100(9.108)+$1,000(.362)=$910.80+$362.00=Fundamentals of Financial Management/12th Edition65.07$1,273.02YTM$1,250$192.09$1,081 X$23.02$192$23X=Fundamentals of Financial Management/12th Edition66.07$1273.02$192.09$1081($23)(0.02)$192$23XX=X=.0024=

33、.07+.0024=.0724 or Fundamentals of Financial Management/12th Edition67P0=S S2t=1(1+kd/2)tI/2=(I/2)(PVIFAkd/2,2)+MV(PVIFkd/2,2)+MV 1+(kd/2)2-1=(effective annual)YTMDetermine the Yield-to-Maturity(YTM)for the semiannual coupon-paying bond with a finite life.(1+kd/2)2Fundamentals of Financial Managemen

34、t/12th Edition68Julie Miller want to determine the YTM for another issue of outstanding bonds.The firm has an issue of 8%semiannual coupon bonds with 20 years left to maturity.The bonds have a current market value of.Fundamentals of Financial Management/12th Edition69P0=(I/2)(PVIFAkd/2,2)+MV(PVIFkd/

35、2,2PVIFAkd/2,40)+$1000(PVIFkd/2,40)Kd/2=4.2626%Kd=8.5252%Fundamentals of Financial Management/12th Edition70 1+(kd/2)2-1=(effective annual)YTMDetermine the Yield-to-Maturity(YTM)for the semiannual coupon-paying bond with a finite life.1+(.042626)2-1=.0871 or 8.71%Fundamentals of Financial Management

36、/12th Edition71-The market required rate of return exceeds the coupon rate(Par P0).The price of the bond will be less than its face value.The coupon rate exceeds the market required rate of return(P0 Par).The price of the bond will be more than its face value.The coupon rate equals the market requir

37、ed rate of return(P0=Par).The price of the bond will equal its face value Fundamentals of Financial Management/12th Edition72MARKET REQUIRED RATE OF RETURN(%)BOND PRICE($)1000 Par16001400120060000 2 4 6 8 12 14 16 18 Interest-rate Risk/Yield Risk The variation in the market price of a security cause

38、d by changes in interest rates is interest-rate risk.Long-term bonds have more price risk than short-term bonds Low coupon rate bonds have more price risk than high coupon rate bondsFundamentals of Financial Management/12th Edition73Fundamentals of Financial Management/12th Edition74Fundamentals of

39、Financial Management/12th Edition75Determine the yield for preferred stock with an infinite life.P0=DP/kP Solving for kP such thatkP=DP/P0 Fundamentals of Financial Management/12th Edition76kP=$10/$100.=.Assume that the annual dividend on each share of preferred stock is$10.Each share of preferred s

40、tock is currently trading at$100.What is the yield on preferred stock?Fundamentals of Financial Management/12th Edition77Assume the constant growth model is appropriate.Determine the yield on the common stock.P0=D1/(ke-g)Solving for ke such thatke=(D1/P0)+g From this equation,it clearly shows that y

41、ield comes from two sources:dividend yield,D1/P0 and expected capital gain yield,g.Fundamentals of Financial Management/12th Edition78ke=($3/$30)+5%=Assume that the expected dividend(D1)on each share of common stock is$3.Each share of common stock is currently trading at$30 and has an expected growt

42、h rate of 5%.What is the yield on common stock?Fundamentals of Financial Management/12th Edition79Fundamentals of Financial Management/12th Edition801.Which of the following best describes intrinsic value?A.The price a security ought to have based on all factors bearing on valuation.B.The amount a f

43、irm could be sold for as a continuing operating business.C.The amount of money that could be realized if an asset or a group of assets is sold separately from its operating organization.D.The market price at which an asset trades.Fundamentals of Financial Management/12th Edition812.What is the marke

44、t value of a$1,000 face-value bond with a 10%coupon rate when the markets rate of return is 9%?A.More than its face value B.Less than its face valueC.$1,000Fundamentals of Financial Management/12th Edition823.Beta Budget Brooms will pay a big$2 dividend next year on its common stock,which is current

45、ly selling at$50 per share.What is the markets required return on this investment if the dividend is expected to grow at 5%forever?A.4%B.5%C.7%D.9%Fundamentals of Financial Management/12th Edition834.If a coupon bond sells at a large discount from par,then which of the following relationships holds

46、true?A.P0the coupon rateB.P0par and YTMthe coupon rateC.P0par and YTMthe coupon rateD.P0par and YTMthe coupon rate Fundamentals of Financial Management/12th Edition845.Market interest rates and the prices of bonds in the secondary market:A.Generally move in opposite direction.B.Generally move in the

47、 same direction.C.Sometimes move in the same direction,sometimes in opposite directions.D.Have no relationship with each other(i.e.,they are independent).Fundamentals of Financial Management/12th Edition856.A$250 face value share of preferred stock,pays a$20 annual dividend and investors required a

48、7%return on this investment.If the security is currently selling for$276,what is the difference between its intrinsic and market value(rounded to the nearest whole dollar)?A.Approximately$26B.Approximately$10C.Approximately$6D.Approximately$1Fundamentals of Financial Management/12th Edition867.What

49、is the yield on a share of preferred stock,which has a$100 par value and is currently selling for$140 in the market place?The share of preferred stock pays a 14%annual dividend.A.19.6%B.14%C.10%D.5.6%Fundamentals of Financial Management/12th Edition878.Which of the following accurately describes the

50、 behavior of bond prices?A.For a given change in market required rate of return,the price of a bond will change by proportionally less,the lower the coupon.B.For a given change in the market required rate of return,the price of a bond will change by a smaller amount,the longer its maturity.C.If inte

51、rest rates rise so that the market required rate of return increases,the bonds price will fall.D.When the market required rate of return equals the stated coupon rate,the price of the bond be greater than its face value.(Assume annual interest payments and discounting.)Fundamentals of Financial Mana

52、gement/12th Edition889.You have been asked to determine the intrinsic value of a share of Quick Quilters,Inc.(QQ)common stock.The stock most recently paid a$2 annual dividend.You expect dividends to grow at a supernormal rate of 15%for the next three years.You then expect that dividends will grow at a normal 5%rate thereafter(indefinitely).As a potential investor,you would expect to earn 10%on this investment.What is the intrinsic value of a share of QQ?