TAILIEUCHUNG - Lecture Financial markets and institutions: Chapter 3 - Anthony Saunders, Marcia Millon Cornett

Chapter 3 - Interest rates and security valuation. This chapter applied the time value of money formulas presented in chapter 2 to the valuation of financial securities such as equities and bonds. With respect to bonds, we included a detailed examination of how changes in interest rates, coupon rates, and time to maturity affect their price and price sensitivity. We also presented a measure of bond price sensitivity to interest rate changes, called duration. We showed how the value of duration is affected by various bond characteristics, such as coupon rates, interest rates, and time to maturity. | Chapter Three Interest Rates and Security Valuation 3- McGraw-Hill/Irwin Various Interest Rate Measures Coupon rate periodic cash flow a bond issuer contractually promises to pay a bond holder Required rate of return (rrr) rates used by individual market participants to calculate fair present values (PV) Expected rate of return (Err) rates participants would earn by buying securities at current market prices (P) Realized rate of return (rr) rates actually earned on investments 3- McGraw-Hill/Irwin Required Rate of Return The fair present value (PV) of a security is determined using the required rate of return (rrr) as the discount rate CF1 = cash flow in period t (t = 1, , n) ~ = indicates the projected cash flow is uncertain n = number of periods in the investment horizon 3- McGraw-Hill/Irwin Expected Rate of Return The current market price (P) of a security is determined using the expected rate of return (Err) as the discount rate CF1 = cash flow in period t (t = 1, , n) ~ = indicates the projected cash flow is uncertain n = number of periods in the investment horizon 3- McGraw-Hill/Irwin Realized Rate of Return The realized rate of return (rr) is the discount rate that just equates the actual purchase price ( ) to the present value of the realized cash flows (RCFt) t (t = 1, , n) 3- McGraw-Hill/Irwin Bond Valuation The present value of a bond (Vb) can be written as: M = the par value of the bond INT = the annual interest (or coupon) payment T = the number of years until the bond matures i = the annual interest rate (often called yield to maturity (ytm)) 3- McGraw-Hill/Irwin Bond Valuation A premium bond has a coupon rate (INT) greater then the required rate of return (rrr) and the fair present value of the bond (Vb) is greater than the face value (M) Discount bond: if INT 3- McGraw-Hill/Irwin Equity Valuation The present value of a stock (Pt) assuming zero growth in dividends .

• Tài chính doanh nghiệp
• Financial markets
• Financial institutions
• Lecture Financial markets and institutions
• Financial institutions markets
• Interest rates
• Security valuation
• Lecture Financial markets
• Thị trường tài chính
• Financial futures markets
• Valuation of financial futures
• Interest rate futures
• Capital markets
• Money markets
• Derivative securities markets
• Futures markets
• Option markets
• Swap markets
• Foreign exchange derivative markets
• Bank management
• Types of Financial Markets
• Securities traded
• Valuation of securities
• Money market yields
• Bond markets
• Municipal bonds
• Mortgage markets
• Primary mortgage market
• Stock markets
• Common stock
• Foreign exchange markets
• Foreign exchange
• Commercial banks
• Financial statements
• Risks at financial institutions
• Market risk
• Exchange rates
• Economics 252
• Efficient markets
• Excess volatility
• Efficient Markets Hypothesis
• Interest rate derivative markets
• Interest rate swaps
• Mortgage backed securities
• Globalization of mortgage markets
• Financial markets and institutions
• The financial system
• Interest rates change
• Financial markets efficient
• Term structure affect interest rates
• The stock market
• The mortgage markets
• The international financial system
• Financial regulation
• Interest rate fundamentals