BOND VALUATION The value of any debt claim is equal to the sum of the discounted future cash flows. The discount [interest] for future cash flows is a function of the level of riskiness for a particular bond and is termed the Yield to Maturity (YTM). Bond valuation model; 1. V = Coupon * PVIFA + Face Value * b PVIF All Rights Reserved Dr David P Echevarria 2 BOND VALUATION A. Valuation of Bonds with Annual, Semi- annual, or ...
PREVIEW OF CHAPTER 14 Intermediate Accounting IFRS 2nd Edition Kieso, Weygandt, and Warfield 14-2 14 Non-Current Liabilities LLEAEARRNNIINNGG OOBBJJECECTTIIVEVESS After studying this chapter, you should be able to: 1. Describe the formal procedures 5. Explain the accounting for long-term associated with issuing long- notes payable. term debt. 6. Describe the accounting for the 2. Identify various types of bond issues. extinguishment of non-current liabilities. 3. Describe the accounting valuation for 7. Describe the accounting for the fair bonds at date ...
Investment decision process Determine the required rate of return Evaluate the investment to determine if its market price is consistent with your required rate of return Estimate the value of the security based on its expected cash flows and your required rate of return Compare this intrinsic value to the market price to decide if you want to buy it Valuation Process Two approaches 1. Top-down, three-step approach 2. Bottom-up, stock valuation, stock picking approach The difference between the two ...
8.1 Bonds and Bond Valuation A bond is a legally binding agreement between a borrower and a lender that specifies the: Par (face) value Coupon rate Coupon payment Maturity Date The yield to maturity is the required market interest rate on the bond. This is determined by the market. 8-2 Bond Valuation Primary Principle: Value of financial securities = PV of expected future cash flows Bond value is, therefore, determined by the present value of the coupon payments and ...
Valuation of Assets in General The following applies to any financial asset: V = Current value of the asset C = Expected future cash flow in period (t) t k = Investor’s required rate of return Note: When analyzing various assets (e.g., bonds, stocks), the formula below is simply modified to fit the particular kind of asset being evaluated. n C V t t t 1(1 k) Valuation of Assets (Continued) Determining Intrinsic Value: – The intrinsic value ...
Key Concepts and Skills • Know the important bond features and bond types • Understand bond values and why they fluctuate • Understand bond ratings and what they mean • Understand the impact of inflation on interest rates • Understand the term structure of interest rates and the determinants of bond yields 7-2 Chapter Outline • Bonds and Bond Valuation • More about Bond Features • Bond Ratings • Some Different Types of Bonds • Bond Markets • Inflation and ...
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