Session 6. Bond and Stock Valuation H

CORPORATE FINANCE
Lecturer: Long Tran Dinh
Chapter 6
INTEREST RATE &
BOND VALUATION
Topics in this Chapter
• 6.1. Bond and Bond Valuation
• 6.2. Types of Bond
Outcome of Chapter
• 6.1. State the reason and importance
of the company's decision to invest in
bonds.
• 6.2. Methods of Bond Valuation
before investment decision making.
Note:
• In the previous chapter, we have learned the Discounted Cashflow
Valuation. In this section, we begin to study ways to apply in Bond
Valuation.
➢ What is Bond? Which are the Bond features?

➢ How to value a Bond and which impacts could affect its valuation?
➢ What are the term structure of interest rate and the determinants of Bond
yield?
Chapter 0utline
6.1
Bond and Bond Valuation
6.2
Types of Bond
4
BOND MARKET Bond
⚫ Capital markets are markets for equity and debt

instruments with original issue maturities of more
than one year
⚫ Bonds are long-term debt obligations issued by
corporations and government units
⚫ Bond markets are markets in which bonds are
issued and traded
⚫ Treasury notes (T-notes) and bonds (T-bonds)
⚫ Municipal bonds (Munis)
⚫ Corporate bonds
BOND MARKET Treasury Notes
Treasury Notes and Bonds

⚫ Treasury notes and bonds (T-notes and T-bonds) are
issued by the U.S. Treasury to finance the national debt
and other government expenditures
⚫ The annual federal deficit is equal to annual
expenditures (G) less taxes (T) received
⚫ The national debt (ND) is the sum of historical annual
federal deficits:
N
NDt =  (Gt − Tt )
t =1
Treasury Notes and Bonds (cont.)

⚫ Default risk free: backed by the full faith and credit of
the U.S. government
⚫ Low returns: low interest rates (yields to maturity)
reflect low default risk
⚫ Interest rate risk: because of their long maturity, T-
notes and T-bonds experience wider price fluctuations
than money market securities when interest rates
change
⚫ Liquidity risk: older issued T-bonds and T-notes trade
less frequently than newly issued T-bonds and T-notes
Treasury Notes and Bonds (cont.)

⚫ T-notes have original maturities from over 1 to 10 years
⚫ T-bonds have original maturities > 10 years
⚫ Issued in minimum denominations (multiples) of $100
⚫ May be either fixed principal or inflation-indexed
⚫ inflation-indexed bonds are called Treasury Inflation
Protection Securities (TIPS)
⚫ the principal value of TIPS is adjusted by the percentage
change in the Consumer Price Index (CPI) every six months
⚫ Trade in very active secondary markets
⚫ Prices are quoted as percentages of face value, may be in
32nds or quoted in decimals.
BOND MARKET Accrued Interest
Accrued Interest and Prices
⚫ Accrued interest must be paid by the buyer of a bond

to the seller of a bond if the bond is purchased between
interest payment dates.
⚫ The price of the bond with accrued interest is called the

full price or the dirty price, the price without
accounting for accrued interest is the clean price.
1. BONDS and BOND VALUATION 1.1. Bond feature and price
Bond is the debt securities issued by corporation or government who wish

to borrow money from the public on a long-term basis
base on discounted cashflow generated by bond yield, we can evaluate the
bond value
1. Bond feature and price
❖ A bond is normally an interest-only loan, meaning that the borrower will pay the interest
every period, but none of the principal will be repaid until the end of the loan
10
1. BONDS and BOND VALUATION 1.1. Bond feature and price
Some important terms of Bond:
Bond’s Coupons The stated interest payment that the bond issuer
promise to pay
Face value (Par

value) The principal amount of a bond that is repaid at the end
of the term
Coupon rate The annual coupon divided by the face value of a bond,
which disclose in percentage
Maturity date or
time to maturity
The number of years until the face value is paid
Issuer
The one who issue a bond in order to borrow loan
Yield (YTM)
The rate required in the market on a bond.
Credit rating The classification of the bond in term of its risk,

executed by credit rating agency
1. BONDS and BOND VALUATION 1.2. Bond values and Yields
❖ A bond has a fixed coupon and face value hence according to fluctuation of the
market interest rate, the bond value will change in adverse.
To determine the value of a bond at a particular point in time, we can calculate the
present value of the cash flows as an estimate of the bond's current market value,
so we need to know:
The number of The market

periods interest rate for
The face value The coupon
remaining until bonds with
maturity similar features.
❖ A bond value of the bond today is the present value of the bond’s cashflow,
hence equal to the total:
PV of the annuity stream PV of the principal in the

Bond value =
(coupon payment) + maturity date (Par value)
EXAMPLE
Suppose the Xanth issue a bond with 10 years
to maturity. The bond has an annual coupon of
$80. Similar bonds have a yield to maturity of
8 percent. Based on our preceding discussion,
the bond will pay $80 per year for the next 10
years in coupon interest. In 10 years, will pay
$1,000 to the owner of the bond. What would
this bond sell for?
14
SOLVE:
First, at the going rate of 8%, the present value of the $1,000 paid in 10 years is:
Second, the bond offers $80 per year for 10 years; the present value of this annuity stream is:
We can now add the values for the two parts together to get the bond's value:
Bond Example: Calculator

• Find the present value (as of January 1, 2021) of a 6.375 percent coupon
bond with semiannual payments and a maturity date of December 2025 if
the YTM is 5 percent.
16
Bond Concepts
Bond prices and market interest rates move in opposite directions.
When coupon rate > YTM, When coupon rate < YTM,
When coupon rate = YTM, price > par value price < par value
price = par value
(premium bond) (discount bond)
17
Discount Bond: the Bond that sold at the price lower than its Face/Par value
Example: The bond interest rates (coupon rate) < market rate
We have just calculated the bond value with an 8% coupon rate, 10 years times to maturity equal to its face value
of $1,000
Let’s assume, it has been 1 year since we have bought the bond, unfortunately the interest rate in the market rise
to 10%/year. How much value this bond worth now?
 The bond value is now less then the face

value (called as discount bond), because
the bond price need lower to compensate
for the shortage of coupon rate ($80-8%)
comparing to market interest rate ($100-
10%)
 Therefore, the bond should sell for about

$885. We say that this bond, with its 8
percent coupon, is priced to yield 10
percent at $885.
 The differentiation of 1000-884.82=$115 can be denoted

by the shortage of coupon as follows:
Premium Bond: the Bond that sold at the price higher than its Face/Par value
Example: The bond interest rates (coupon rate) > market rate
Let’s assume, it has been 1 year since we have bought the bond, but rather than increase by 2%, the interest
rate in the market drop to 6%/year. How much value this bond worth now?
 The bond value is now higher then the face value (called
as premium bond), because the bond price is now
reflect the additional gain of coupon rate ($80-8%)
comparing to market interest rate ($60-6%)
 Therefore, the bond should sell for about $1,136. We

say that this bond, with its 8 percent coupon, is priced
to yield 6% percent at $1,136.
 The differentiation of 1,136-1000 = $136 can be denoted by the additional of coupon as follows:
YTM and Bond Value
When the YTM > coupon, the bond trades at a discount.
20
Semi-annual Bond: coupon is paid every 6 month or twice a year

Example:
United States treasury bond usually make coupon payments twice a year, bond yields are quoted
as APRs (Mỹ ghi lợi suất trái phiếu dưới dạng APRs)
Let’s assume, the bond mature in 7 years, coupon rate at 14%/year (semi-annually), The yield to
maturity is quoted at 16 percent.
APRs: coupon rate 14% semiannual  7% every 6 months
market rate 16% semiannual  8% every 6 months
 The bond value is now lower then the face value

because the bond price is now reflect the
shortage of coupon rate ($140-14%) comparing
to market interest rate ($160-16%)
 The bond should sell for about $ 917.56. We say that this
semiannual bond, with its 14 percent coupon, is priced to
yield 16% percent at $917.56.
Semi-annual Bond: coupon is paid every 6 month or twice a year

Note:
1/ Khác với DCF chúng ta phải dùng EAR để chiết khấu dòng tiền. Khi định giá BOND,
chúng ta chỉ cần dùng APR-lãi suất danh nghĩa vì BOND không dễ để tái tục phần lãi như
khoản gửi tiết kiệm hay tái đầu tư vào BOND.
2/ Trường hợp muốn so sánh giá trị BOND bằng EAR, cần chuyển Payment và lãi suất chiết
khấu từ APR thành EAR (lãi hiệu dụng theo năm):
• Giá trị chênh lệch giữa coupon rate 14% và market rate 16%:
• The present value of $21.5 per year for 7 years at 16%-APR or 16.64%-EAR is:
3/ Nếu lãi suất thị trường tăng, giá trị của Bond sẽ giảm vì giá trị của Bond là Present value
của dòng tiền trong tương lai chiết khấu về. Và ngược lại:
1. BONDS and BOND VALUATION 1.3. Interest Rate Risk
Interest Rate Risk: the risk that arises for bond owners from fluctuating interest rates
How much interest rate risk a bond has depends on how sensitive its price is to
interest rate changes.
This sensitivity directly depends on two things:

• The time to maturity (longer time – higher risk): Any
small change can become critical in the long run
• The coupon rate (lower coupon – higher risk): low
coupon means the value of bond depend mostly on Par
value. As Par value only be paid at the end of period
hence its present value would much varied
23
Interest Rate Risk & Time to Maturity
❖ Even a small change in the interest rate,

however, once it is compounded for 30 years,
can have a significant effect on the present
value.
 As a result, the present value of the face
amount will be much more volatile with a
longer-term bond.
❖ Bonds with lower coupons have greater interest

rate risk. As the value of a bond depends on the
present value of its coupons payment and the
present value of the face value.
 The bond with the higher coupon has a larger
cash flow early in its life, so its value is less
sensitive to changes in the discount rate.
 Like most things in finance and economics,
interest rate risk increases at a decreasing rate.
A note of Normal Yield Curve

&
Converted Yield Curve
• A yield curve is a graph that

depicts the relationship
between a bond's yield and
maturity.
• In a normal environment, yields on long-term bonds will typically be higher than short-term
bonds to offset the potential risks of long-term bonds – including risks of inflation, liquidity and
price volatility… Then, the yield curve will have an upward sloping shape or so-called "normal"
curve as shown in Figure 1 .
• However, in some special circumstances, the yield curve can be inverted, specifically, the longer
a bond matured, the more it is assessed as lower risk expressed through the interest rate - the
coupon rate of the longer maturity bond might be smaller than shorter as shown in figure 2
1. BONDS and BOND VALUATION 1.4. Yield to maturity
Yield to maturity (YTM) is the total expected return for an

investor if the bond is held to maturity
YTM is nothing but the internal rate of return (IRR) of a bond. However, the
investment must be held until maturity, and all the proceeds must be reinvested at a
constant rate.
26
Computing Yield to Maturity
• Yield to maturity is the rate implied by the current bond price.

• Finding the Y T M requires trial and error if you do not have a financial calculator, and
it is similar to the process for finding r with an annuity.
• If you have a financial calculator, enter N, P V, P M T, and F V, remembering the sign
convention (P M T and F V need to have the same sign, P V the opposite sign).
27
Y T M with Annual Coupons
Consider a bond with a 10 percent

N = 15 annual coupon rate, 15 years to
PV = −928.09 maturity, and a par value of $1,000.
FV = 1,000 The current price is $928.09.
PMT = 100 Will the yield be more or less than
CPT I / Y = 11% 10 percent?
28
Y T M with Semiannual Coupons
Suppose a bond with a 10 percent coupon rate and

semiannual coupons has a face value of $1,000,
20 years to maturity, and is selling for $1,197.93.
• Is the YTM more or less than 10 percent?

• What is the semiannual coupon payment?
• How many periods are there?
• N = 40; P V = −1,197.93; P M T = 50; F V = 1,000; C P T
• I / Y = 4% (Is this the YTM?)
• YTM = 4% × 2 = 8%
29
Differentiation of major term of bond rate
A note:
- To find Bond intrinsic Value we use Coupon Rate
- To find Bond Price in term of holding to maturity and expected return we use YTM
- To find Bond value in term of current return of Bond we use Current Yield
Example of Current Yield and YTM

• price of a bond can be written as the sum of its annuity and lump sum components.
• While r can either unknown discounted rate or YTM
EXAMPLE Suppose we are interested in a six-year, 8 percent coupon bond.

A broker quotes a price of $955.14. What is the yield on this bond?
SOLVE Base on the formula we have:
1− 1
(1 + r)6 1,000
$955.14 = $80 * +
𝑟 (1 + r)6
To find the YTM – r, we replace randomly r as 10% or 9% or 8%
As prescribed, if r = 10%, bond value = $912.89, a bit lower than its current price of $955.1 => 9%
is the bond YTM
While the bond Current Yield can be calculate as divide annual coupon by its current price =>
$80/955.14 = 8.38%
➔ The reason the current yield is too low is that it considers only the coupon portion of your
return; it doesn't consider the built-in gain from the price discount.
Current Yield versus Yield to Maturity

Current yield = Annual coupon
Price
Yield to maturity = Current yield + Capital gains yield
$100
Current yield = = .0835, or 8.35%
$1,197.93
Price in one year, assuming no change in YTM = 1,193.68
( $1,193.68 – 1,197.93)
Capital gain yield = = –.0035, or –.35%
$1,197.93
YTM = 8.35% − .35% = 8%, which is the same YTM computed earlier
1. BONDS and BOND VALUATION 1.5. Other terms of Bond
1. Debt or equity: 2. The Indenture: 3. Registed form

or Bearer form
(nợ hay vốn chủ) (khế ước) (Định danh hay vô danh)
• Despite whether Bond is with • The written agreement • Corporate Bond mostly under
interest payable solely from between the corporation and the Resistered form, which is
corporate income if and only if the lender detailing the terms The form in which the
earned or not, Bond is refers of the debt issue, generally registrar of the company
to Debt as it do not represents includes the following records ownership of each
an ownership interest. provisions; bond; payment is made
• The basic terms of the bonds. directly to the owner of record.
• The total amount of bonds While Bearer form don’t record
issued. of the owner's name and
payment is made to whomever
• A description of property used
holds the bond.
as security.
• The repayment arrangements.
• The call provisions.
• Details of the protective
covenants.
The indenture of Registed

form might as follows:
33
1. BONDS and BOND VALUATION 1.5. Other terms of Bond
4. Collateral vs
5. Seniority: 6. Repayment:
Mortgage Bond: 7. Call Provision
(thứ tự thanh toán ưu tiên) (tất toán)
(Tài sản đảm bảo)
• Collateral is a general • Seniority indicates • Bond can be repaid at • An agreement giving
term that frequently preference in position maturity or may be the Bond issuer the
means securities (for over other lenders repaid in part or in option to repurchase a
example, bonds and entirety before bond at a specified
stocks) that are maturity. In order to price prior to maturity
pledged as security for repaid earlier, the
payment of debt. For bond issuer might • Call premium: The
example, collateral establish sinking fund amount by which the
trust bonds often which managed by the call price exceeds the
involve a pledge of Bond trustee. The par value of a bond.
common stock held by company will makes
the corporation. annual payments to
the trustee then the • Deffered call provision:
trustee will uses the a certain date that the
• Mortgage securities are bond are not allowed
secured by a mortgage funds to retire a
portion of the debt to be redeemed earlier
on the real property of
the borrower. The
property involved is
usually real estate-for
example, land or
buildings.
34
1. BONDS and BOND VALUATION 1.6. Bond Rating
The definitions of creditworthiness used by Moody’s and S&P (the 2 leading debt ratings) are
based on how likely the firm is to default and the protection creditors have in the event of a default.
35
Chapter 0utline
6.2 6.1
Types of Bond
Bond and bond
valuation
36
2. TYPES OF BOND 2.1. Government Bonds
When the government wishes to borrow money, it sells T-Bill (<1 year) or Treasury
notes (<10 years) and T-bonds to the public (>10 years).
State and local governments also borrow money by selling notes and bonds. Such
issues are called municipal notes and bonds. Unlike Treasury issues, Munis have
varying degrees of default risk, and, in fact, they are rated much like corporate
issues.
37
2. TYPES OF BOND 2.2. Zero Coupon Bonds
• A bond that makes periodic interest payments (coupon rate = 0%) and is thus Initially
priced at a deep discount.
• The entire yield to maturity comes from the difference between the purchase price and the
par value
• Cannot sell for more than par value
• Sometimes called zeroes, deep discount bonds, or original issue discount bonds (OIDs)
• Treasury bills and principal-only Treasury strips are good examples of zeroes
Suppose the Eight-Inch Nails (EIN)

Company issues a $1,000 face value,
five-year zero coupon bond.
The initial price is set at $508.35,
YTM = 14%/year/semiannual.
• The total interest paid over the life of the bond is $1,000 - 508.35 = $491.65
• The annual interest deduction would have been $491.65/5 = $98.33 per year.
• For tax purposes, the issuer of a zero coupon bond deducts interest every year even though no interest
is actually paid. Similarly, the owner must pay taxes on interest accrued every year, even though no
interest is actually received => Taxable income = $98.33/year 38
Bond Pricing with a Spreadsheet 1
There are specific formulas for finding bond prices and yields on a spreadsheet.
PRICE(Settlement, Maturity, Rate, Yld, Redemption,

Frequency, Basis)
YIELD(Settlement, Maturity, Rate, Pr, Redemption,

Frequency, Basis)
Settlement and maturity need to be actual dates.
The redemption and Pr need to given as % of par

value.
39
Bond Pricing with a Spreadsheet 1
EXAMPLE: You are looking at a bond that has 22 years to maturity. The coupon rate is 8
percent and coupons are paid semiannually. The yield-to-maturity is 9 percent. What is the
current price?
RATE 4.50% (9%/2)
NPER 44 (22*2)
PMT 4 (8%*100/2)
FV 100 (Using 100 par so that PV will give price as % of par)
Price $90.49 Formula: −PV(4.50%,44,4,100)
You are looking at a bond that has 22 years to maturity. The coupon rate is 8 percent and
coupons are paid semiannually. The current price is $960.17. What is the yield to maturity?
NPER 44 (22*2)
PMT 4 (8%*100/2)
PV −96.017 (Entered as a % of par and negative for sign convention)
FV 100
YTM 8.40% (Returns as a whole percent, format to get decimal places)
=2*RATE(44,4,-96.017,100)
Formula:
(Have to multiply by 2 because it returns a semiannual rate)
40
2. TYPES OF BOND 3. Floating – rate Bonds
With floating-rate bonds, the coupon payments are adjustable. The adjustments are tied to
an interest rate index such as the Treasury bill interest rate or the 30-year Treasury bond
rate
1. The holder has the right to redeem the note at par on

the coupon payment date after some specified amount of
time. This is called a put provision, and it is discussed in
the following section.
2. The coupon rate has a floor and a ceiling, meaning

that the coupon is subject to a minimum and a
maximum. In this case, the coupon rate is said to be
"capped," and the upper and lower rates are sometimes
called the collar.
3. A particularly interesting type of floating-rate bond is

an inflation-linked bond. Such bonds have coupons that
are adjusted according to the rate of inflation (the
principal amount may be adjusted as well).
41
2. TYPES OF BOND 4. Other types of Bonds
Income bonds are similar to conventional bonds, except that coupon payments
depend on company income. Specifically, coupons are paid to bondholders only if
the firm's income is sufficient.
Convertible bond can be swapped for a fixed number of shares of stock anytime
before maturity at the holder's option.
Put bond allows the holder to force the issuer to buy back the bond at a stated
price. For example, International Paper Co. has bonds outstanding that allow the
holder to force International Paper to buy the bonds back at 100 percent of face
value if certain "risk“ events happen or change in credit rating.
Reverse convertible is a relatively new type of structured note. One type generally
offers a high coupon rate, but the redemption at maturity can be paid in cash at par
value or paid in shares of stock.
42
THANKS!
Any questions?
You can find me at [email protected] +84 83 456 1007
43
CORPORATE FINANCE
Chapter 6 (cont.) INTEREST RATE & BOND VALUATION

• 6.3. Bond Market.
• 6.4. Impact of Inflation and Interest rate
Outcome of Chapter
• 6.1. Define the rate of return when
investing in bond
• 6.2. Evaluate the risk in bond investing

3. BOND MARKET 3.1. Bond market
The bond markets are so big as the number of bond issued far
exceeds the number of stock issued.
• First, a corporation would typically have only one common
stock issue outstanding (there are exceptions to this that we
discuss in our next chapter). However, a single large
corporation could easily have a dozen or more note and bond
issues outstanding.
• Second, federal, state, and local borrowing is simply enormous.
Because the bond market is almost entirely OTC (over the
counter - transaction by agreement outside the centralized listed
market), it has historically had little or no transparency.
Transactions are privately negotiated between parties, and there
is little or no centralized reporting of transactions.
However, transparency in the corporate bond market began to
improve dramatically. Under new regulations, corporate bond
dealers are now required to report trade information through
what is known as the Trade Reporting and Compliance Engine
(TRACE). 46
3. BOND MARKET 3.2. General characteristics of Bond
The bond issuer is obligated to

periodically make interest
Bonds are long-term debt securities
payments (either once a year or
issued by a government or a
semi-annually)–bond coupon, zero -
company.
coupon bond. And fully pay the
Principal at the maturity of the bond.
Issuers must demonstrate that

The issuer needs to clearly disclose
future cash flows are sufficient to
the purpose and route of using the
cover interest and principal to
money from the issued bonds
bondholders.
Bondholders or Investors will

consider buying risky bonds only if
Most bonds have maturities between
the rate of return on their
10 and 30 years.
investment in the bond is sufficient to
offset the risk.
3. BOND MARKET 3.2. General characteristics of Bond Classifications
Government bonds Government-guaranteed bonds

Corporate bonds
• issued by the State Treasury • Bonds issued by enterprises,

(Vietnam) or Ministry of financial institutions, credit • issued by companies.
Finance (USA). institutions, and policy banks of • Bond issued by companies or
• 02 main types in Vietnam: the State that are specified in the financial institutions that need to
• Treasury bills (Tín phiếu kho bạc Law on Public Debt Management raise capital for business activities.
– vốn ngắn hạn kỳ hạn 3-6-12 and guaranteed for payment by
tháng), the Government.
• Treasury bonds (Trái phiếu kho
bạc – vốn trung dài hạn từ 1 năm
trở lên)
• Federal institutional bonds are
issued by federal institutions
(USA).
• Municipal bonds are issued by
local governments (Vietnam).
• Bond issued by the People's
Committee of the province or
central cities to mobilize capital
for local investment projects
3. BOND MARKET 3.2. General characteristics of Bond Classifications
2/ by Guaranteed 4/ by additional
3/ by ownership
method conditions
Secured bond: A type of bond

that is guaranteed to pay all or Convertible bond: A type of
part of the principal and bond issued by a joint-stock
Anonymous bonds: require
interest at maturity with the company, allowing
the bondholder to cut the
assets of the issuing enterprise bondholders to convert into
coupon attached to the bond
or the assets of a third party, or "common shares" of the
the payment guarantee of the and send it to the issuer to
issuing company under the
organization. finance and credit receive interest payment.
conditions specified in the
with the function of providing issuance plan.
payment guarantee services.
Callable bonds, also known

Unsecured bond: A bond Signed bonds: require the as callable bonds: A type of
that is issued without issuer to keep a record of the bond that is issued with a
collateral or a third-party bondholders and provision that allows the
guarantee, but is mainly automatically transfer issuer to buy back all or part
based on the reputation and interest payments to the of the issued bonds before the
brand of the issuer. owners. maturity date at a certain
price on a specified date.
Công cụ trên thị trường trái phiếu
T-note and T-bond

• The primary market of T-notes and T-bonds is
similar to that of T-bills;
• the U.S. Treasury sells T-notes and T-bonds through
competitive and noncompetitive single-bid auctions
➢2-year notes are auctioned monthly
➢3-, 5-, and 10-year notes are auctioned quarterly (Feb,
May, Aug, and Nov)
➢30-year bonds are auctioned semi-annually (Feb and Aug)
• Most secondary trading occurs directly through
brokers and dealers
Municipal Bonds
• Municipal bonds (Munis) are securities issued by state and local
governments
• to fund imbalances between expenditures and receipts
• to finance long-term capital outlays
• Attractive to household investors because interest is exempt from
federal and most local income taxes
• General obligation (GO) bonds are backed by the full faith and
credit of the issuing municipality
• Many GO bonds are insured by a third party to improve the
credit rating and liquidity
• Revenue bonds are sold to finance specific revenue generating
projects
Municipal Bonds (cont.)

• Compare Muni returns with fully taxable corporate
bonds by finding the after tax return for corporate
bonds:
ia = ib(1 – t)
ia = after-tax rate of return on a taxable corporate
bond
ib = before-tax rate of return on a taxable bond
t = marginal total income tax rate of the bond holder
• Alternately, convert Muni interest rates to tax
equivalent rates of return: ib = ia/(1 – t)
Municipal Bond Rates & Taxes
• For a 28% tax bracket, what is the equivalent after tax

rate of a 6% corporate yield?
ia = 6%(1- 0.28) = 4.32%
• For a 28% tax bracket, what corporate taxable yield is

equivalent to a 4.5% muni bond rate?
ib = 4.5% / (1-0.28) = 6.25%
Corporate Bonds
• Debentures and subordinated debentures
• Convertible bonds versus non-convertible bonds
icvb = incvb − opcvb
icvb = rate of return on a convertible bond
incvb = rate of return on a nonconvertible bond
opcvb = value of the conversion option
• Stock warrants give bondholders the opportunity to

purchase common stock at a prespecified price
Corporate Bonds (cont.)

• Primary markets are identical to that of Munis
• Secondary markets
• the exchange market (e.g., bond division of the NYSE)
• the over-the-counter (OTC) market
• Bond ratings
• the three major bond rating agencies are Moody’s, Standard &
Poor’s (S&P), and Fitch
• bonds are rated by perceived default risk
• bonds may be either investment or speculative (i.e., junk)
grade
Corporate Bonds (cont.)

• Callable bonds versus non-callable bonds
incb = icb − opcvb

incb = rate of return on a noncallable bond
icb = rate of return on a callable bond
opcb = value of the call option
• A sinking fund provision is a requirement that the issuer

retire a certain amount of the bond issue early as the bonds
approach maturity
•
• Clean price: The price of a bond net of accrued interest; this is the price that is typically quoted.
• Dirty price: The price of a bond including accrued interest, also known as the full or invoice price.
This is the price the buyer actually pays.
For example: Suppose you pay $108k to buy a bond with a 9 percent annual coupon (APR), payable
semiannually, which is 9 months old (đã qua 1 kỳ coupon là 6 tháng và cộng thêm 3 tháng của kỳ
coupon dang dở kế tiếp).
=> The dirty price = $108k.
=> The clean price = dirty price – accrued interest
= $108k – 3/6 * $4,500 = $108k – $2,250 = 105.75k
9 months
4. INFLATION AND INTEREST RATES 1. Real interest rate vs Nominal interest rate
• Nominal rates are called "nominal" because they have not been
adjusted for inflation.
• Real rates are rates that have been adjusted for inflation.
The nominal rate on an investment is the percentage

change in the number of dollars you have.
The real rate on an investment is the percentage
change in how much you can buy with your dollars-in
other words, the percentage change in your buying
power.
58
4. INFLATION AND INTEREST RATES 2. The Fisher effect
• The relationship between nominal returns, real returns, and inflation.
In order to find the real rate with the known nominal and inflation rate, Fisher came up with the
equation as follows:
So as the previous example, we can easily compute the real rate as:
1 + 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑟𝑎𝑡𝑒 (𝑅) 1 + 20%
r (Real rate) = 1 +𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒 (ℎ) = 1 + 5% = 14.3%
59
5. INFLATION AND PRESENT VALUES
The basic principle: Either discount nominal cash flows at a nominal rate or discount real cash flows at a real rate. As
long as you are consistent, you will get the same answer.
Suppose you want to withdraw money each year for the next three years (nominal interest rate = 10%), and you want
each withdrawal to have $25,000 worth of purchasing power as measured in current dollars. If the inflation rate is 4
percent per year, then the withdrawals will simply have to increase by 4 percent each year to compensate. The
withdrawals each year will thus be:
1st: discount by nominal rate
2nd: discount by real rate (real rate đã cấn trừ inflation rate rồi nên xài trực tiếp vào công thức annuity)
6. DETERMINANTS OF BOND YIELDS 1. The Term structure of Interest rates
The relationship between nominal interest rates on default-free, pure discount securities and time
to maturity; that is, the pure time value of money.
“pure” means that they involve no risk of default and a single, lump sum future payment. In other
words, the term structure tells us the pure time value of money for different lengths of time
• When long-term rates are higher than short-term

rates, we say that the term structure is upward
sloping;
• When short-term rates are higher, it is downward
sloping.
• The term structure can also be "humped." increase at
first, but then begin to decline as longer-term rates
Determinants of the shape of the term structure

1/ The real rate of interest: is the compensation investors demand for forgoing the use of their money.
When the real rate is high. all interest rates will tend to be higher, and vice versa. Thus, the real rate doesn't
really determine the shape of the term structure; instead, it mostly influences the overall level of interest rates.
2/ The rate of inflation: the prospect of future inflation strongly influences the shape of the term structure.
The higher prospect of inflation mean that Investors’ future money will less
value. As a result, investors demand compensation for this loss in the form of
higher nominal rates. The compensated amount called inflation premium.
3/ The interest rate risk: longer-term bonds have much greater risk of loss resulting from the more volatility of
interest rates in long-term than shorter-term bonds.
Investors recognize this risk, and they demand extra compensation in the form of
higher rates for bearing it. The compensated amount called interest rate risk premium.
62
➢ Putting the pieces together, we see

that the term structure reflects the
combined effect of the real rate of
interest, the inflation premium,
and the interest rate risk premium.
➢ With the previous explanation, the

inflation premium play the most
essential in shaping the term
structure of Interest rates
6. DETERMINANTS OF BOND YIELDS 2. Bond Yields and the Yield Curve
• The Treasury yield curve and the term structure of interest rates
are almost the same thing. Hence, Treasury yields depend on the
same three components that underlie the term structure-the real
rate, expected future inflation, and the interest rate risk
premium.
• The only difference is that the term structure is based on pure

discount bonds, whereas the yield curve is based on coupon
bond yields
Treasury notes and bonds have three important features that impact its’ yield curve:
1/ Default risk premium (rủi ro mất khả năng thanh toán):

The portion of a nominal interest rate or bond yield that represents compensation for the possibility of
default
2/ Taxability premium (phần bù chi phí thuế):

The portion of a nominal Interest rate or bond yield that represents compensation for unfavorable tax
status.
3/ Liquidity premium (phần bù tính thanh khoản):

The portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity.
Or use the fundamental formula:
1 − (1+𝑌𝑇𝑀)−10 1000
936 = 80 X +
𝑌𝑇𝑀 (1+𝑌𝑇𝑀)10
Replace randomly value of YTM
-> YTM = 9%
Solve
Solve
6. DETERMINANTS OF BOND YIELDS Clean Prices of Bonds
⚫ “Clean” prices are calculated as:

INT
Vb = (PVIFA id / m, Nm ) + M (PVIFid / m, Nm )
m
Vb = the present value of the bond

M = the par value of the bond
INT = annual interest payment (in dollars)
N = the number of years until the bond matures
m = the number of times per year interest is paid
id = interest rate used to discount cash flows on the bond
6-68
Example: clean price calculation
6. DETERMINANTS OF BOND YIELDS Accrued Interest on Bonds
(lãi suất cộng dồn bù đắp cho thời gian nắm giữ của chủ sở hữu trước do
chưa đến kỳ hạn nhận lợi tức)
⚫ Accrued interest on T-notes and T-bonds is calculated as:

INT Actual number of days since last coupon payment
Accrued interest = 
2 Actual number of days in coupon period
⚫ The full (or dirty) price of a T-note or T-bond is the sum of the
clean price (Vb) and the accrued interest
6-70
6. DETERMINANTS OF BOND YIELDS Accrued Interest on Bonds
Accrued Interest example

You buy a 6% coupon $1,000 par T-bond 59 days
after the last coupon payment. Settlement occurs
in two days. You become the owner 61 days after
the last coupon payment (59+2), and there are 121
days remaining until the next coupon payment.
The bond’s clean price quote is 120.59375. What
is the full or dirty price (sometimes called the
invoice price)?
• The clean price is 120.59375% of $1,000 or $1,205.9375.

• Thus, the dirty price is $1,205.9375 + $10.05 = $1,215.9875.
$60 61
Accrued Interest =  = $10 .05
2 (121 + 61)
71
THANKS!
Any questions?
72
CORPORATE FINANCE
Chapter 6
STOCK MARKET
Outcome of Chapter
•
Note:
•
Capital Resources
76
Common stock
Common Stock’s Feature
▪
▪
▪
▪
▪
▪
▪ a liquidation.
77
Common stock
Common Stock’s Feature (cont.)
▪
▪
▪
78
Common stock
Voting right
Cumulative voting (bỏ phiếu tích lũy):

• .
•
79
SHAREHOLDERS CANDIDATES BOD
A
LONG
LONG
HUY
HUY
B
VÂN
VÂN
LAN
ả ử ỏ ế ứ ử ị ổ
ắ ắ ư ậ ẽ ế ế
ố ể ượ
➔ ặ ổ ớ ư ế ầ ộ ế ầ
➔ ẽ ể ế ủ ườ ể ể ả ả ả ườ ề ế ầ ượ
➔ ẽ ắ ử ồ ế
Common stock
Voting right
Straight voting (bỏ phiếu trực tiếp)
• directors.
•
ả ử ớ ụ ướ ế ẽ ầ ầ ượ ừ ị ỗ ị
ẽ ố ế ầ ươ ứ ớ ượ ổ ầ ắ ữ ụ ể ẽ ế
ế ư ậ ẽ ẽ ể ồ
Proxy Voting (bỏ phiếu ủy thác)

•
81
Common stock
Dividend
• Dividend paid
of directors
.
corporation's after-tax profits.
82
Preferred stock
Preferred Stock’s Feature
ổ ế ư ồ
Cổ phiếu ưu đãi
ổ ế ư ổ ượ
Cổ phiếu ưu đãi hoán đổi được
ổ ế ư ũ
ổ ế ư
83
Preferred stock
Preferred Stock’s Feature
84
Securities Market
85
Securities Market
Structure of Securities Market
SSC VNX
HNX HOSE
86
Securities Market
Functions
of Securities
Market
87
Securities Market
Participants of Securities Market
88
Issuers
89
Investors
90
Organizations providing products / services on the stock market
91
Related organizations
92
Securities Market
Classification
Bond market
based on
Stock market
Circulating Goods
Derivatives market
based on Primary market

Nature of Issuance Secondary market
based on Centralized market (listed on the stock exchange)

Method of
Transaction Decentralized market (OTC)
93
Securities Market
Primary Market (Thị trường sơ cấp)

▪ Is the market for buying and selling first issued securities. Capital from
investors will be transferred to the issuer through the purchase of first
issued securities.
▪ Other names: tier 1 market, issuance market
94
Securities Market
Primary Market
▪
▪
▪
▪
95
Securities Market
Secondary Market (Thị trường thứ cấp)
▪ ➔
▪ ➔
▪
96
Securities Market
Compare: Primary Secondary Market
Primary market Secondary market
Trading securities issued

Trading first issued on primary market
securities
No capital created for
issuers.
Create capital for issuers Increase liquidity for

securities issued on
primary market
97
Securities Market
Centralized market - Stock Exchange
Securities is traded in a centralized place called an

exchange or through a computer system
SE is the agency that directly manages activities related to

listed securities
Securities company is a member of the Stock Exchange
Listed securities: the securities of a public company meet

the standards regulated by the exchange.
98
Securities Market
Securities Listing
Securities listing is the procedure allowing a certain

security to be traded on a stock exchange
• The company easily mobilize capital

Advantages
• Promote the company's image to the public

• Promote a more effective management
• Improve liquidity for securities
• Tax incentives (depending on period)
Disadvantages
• Listed companies are obligated to disclose

adequate information→ affect its confidentiality
sometimes
• Company value is subject to great fluctuations
• There is a risk of being acquired.
99
Securities Market
Decentralize market (OTC)
▪ OTC “over the counter” → is traded over the counter of banks, securities
companies.
▪ A market without a centralized transaction center, which is a network of brokers
and securities dealers buying and selling with each other and with investors,
trading activities take place at the counters of banks or securities companies.
▪ Price setting mechanism: negotiating the
price between the buyer and the seller
▪ Mostly is the securities of SMEs, newly
established companies but with good
development potential
▪ The market maker system
▪ There are two levels of governance: state
and self-governing
▪ Flexible payment method
100
Securities Market
Decentralized Market - OTC VS Centralized Market - Exchanges
OTC market Exchanges

• Decentralized place • Centralized location
• Transactions over the • Online Trading
network or not • Centralized auctions and
• Purchase agreement put through deals
• Most of them are Class 2 • Class 1 securities have
securities with high risk low risk
101
Market Orders; Limit Orders and Stop Orders
MARKET ORDERS: LIMIT ORDERS:
You specify ticker and quantity. You specify ticker, quantity, and price.
Immediate execution at best available price. The order will be executed only if trade can be
made at the limit price or better.
• Market buy will be executed at lowest ask.
• Limit buy can only be executed at limit price or
• Market sell will be executed at highest bid.
lower.
• Limit sell can only be executed at limit price or
higher.
The stop price is the trigger or activation point.

• If the stop price is reached or passed, the order
becomes a market order to be executed at the
best available price.
• Risk: Price suddenly plummets or rises and the
execution price is much different than expected.
102
THANKS!
Any questions?
103
CORPORATE FINANCE
Chapter 6
STOCK VALUATION
• Describe methods of valuing stocks
before making investment decisions.
• Determine the rate of return when
investing in stocks.
Outcome of Chapter
• How stock prices depend on future
dividends and dividend growth?
• How to value stocks using multiples?
Note:
•
I. COMMON STOCK VALUATION by DCF
I. Common Stock’s Valuation by Cashflow of Dividend

Tương tự như định giá trái phiếu, chúng ta định giá cổ phiếu dựa trên dòng tiền mà nó mang
lại. Ở trái phiếu là coupon còn ở cổ phiếu là dividend.
I.1/ Case 1: 1 year period
Ta có công thức tổng quát định giá cổ phiếu regarding to expected price and dividend in
specific time in the future by discounting the Future value of bond price and dividend to
Present value.
Po be the current price of the stock, and assign
PI to be the price in one period.
D is the cash dividend paid at the end of the period
R is the required return in the market on this investment
Example: Imagine that you are considering buying a share of stock today. You expect
the stock will be worth $70 next year. You predict that the stock will also pay a $10
per share dividend at the end of the year. If you require a 25 percent return on your
investment, what is the most you would pay for the stock?
If you buy the stock today and sell it at the end of the year, you will have a total of $80 in
cash. At 25 percent:
Present value = ($10 + $70) / (1 + 0.25%) = $64
Therefore, $64 is the value you would assign to the stock today. 107
I.2/ Case 2: multiple periods with different dividend growth rate before sold
Giả sử thay vì 1 năm period như trường hợp 1, ta mua cổ phiếu với dự kiến sẽ bán cổ phiếu sau 3 năm
trong đó 3 năm đầu kỳ vọng cổ tức biến động.
Example: Imagine that you are considering buying a share of stock today. You expect the stock will be worth $70 in
next 3 years. You predict that the stock will pay dividend for the next 3 years in sequence of $10, $12, $15 per share. If
you require a 25 percent return on your investment, what is the most you would pay for the stock?
Solve: If you buy the stock today and sell it at the end of 3 year. At 25 percent
$𝟏𝟎 $𝟏𝟐 $𝟏𝟓 $𝟕𝟎

Present value = + + + = $ 59.2
𝟏.𝟐𝟓𝟏 𝟏.𝟐𝟓𝟐 𝟏.𝟐𝟓𝟑 𝟏.𝟐𝟓𝟑
Therefore, $59.2 is the value you would assign to the stock today.
I.3/ Case 3. A Differential Growth Example

A common stock just paid a dividend of $2. The dividend is expected to grow at 8 percent for 3 years,
then it will grow at 4 percent in perpetuity.
What is the stock worth? Assume the discount rate is 12 percent.
With the Formula With Cash Flows
 2 (1.08 )3 (1.04 ) 
 
$2  1.08  1.08  
3  .12 − .04 
P= 1− + 
 3
.12 − .08  1.12  3
1.12
$32.75
P = $54  1 − .8966 +
1.123
P = $5.58 + 23.31 $2.16 $2.33 $2.52 + 32.75
P0 = + + = $28.89
P = $28.89 1.12 1.122 1.123
The constant growth phase beginning in

Year 4 can be valued as a growing
perpetuity at Year 3.
I.4/ Case 4: eternity periods with equal growth rate dividend - Constant Growth
Giả sử ta mua cổ phiếu với dự kiến sẽ nắm giữ cổ phiếu để nhận cổ tức và không bao giờ bán. We
expect that the dividend will have an equal growth rate of 10% forever.
Chapt 4: Dòng tiền tăng trưởng đều vô hạn
Example: Imagine that you are considering buying a share of stock 5 years from today. The stock
is currently pay a $10 per share dividend and you expect the dividend will have a steady 10%
growth rate later on. If you require a 25 percent return on your investment, what will the most
you would pay for the stock after the next 5 years?
Solve:
Dividend of year 5: Note:
𝐃𝟓 = 𝐃𝟎 x (𝟏 + 𝐠)𝐭 = $𝟏𝟎 x 𝟏. 𝟏𝟓 = $16.1051 Nếu đề cho dividend không phải
The price of the stock in 5 years: năm nay mà năm sau là $10
𝐃𝟔 𝐃 𝐱 (𝟏+𝐠) $16.1051 𝐗 (𝟏+𝟏𝟎%)
thì mũ T phải trừ đi 1
𝐏𝟓 = 𝐑−𝐠 = 𝟓 𝐑−𝐠 = = $118.1
𝟐𝟓%−𝟏𝟎%
Therefore, $118.1 is the value you would assign to the stock 5 years later.
Nếu mua bây giờ - P0 ta tính bằng D1
I.4/ Case 4: eternity periods with unequal growth rate dividend - Nonconstant Growth
Giả sử ta mua cổ phiếu với dự kiến sẽ nắm giữ cổ phiếu để nhận cổ tức và không bao giờ bán. We
expect that the dividend will have different growth rate for the few beginning years before it goes
steadily.
Example: Imagine that you are considering buying a share of stock. You expect that the stock will
pay dividend for the next 3 year in sequence of $1, $2, $2.5 before it have a steady 5% growth
rate/year . If you require a 10% return on your investment, what is the most you would pay for
the stock?
Solve: The price of stock in year 3:

(𝟏+𝒈) (𝟏+𝟓%)
𝑷𝟑 = 𝑫𝟑 x 𝑹−𝒈 = $𝟐. 𝟓 x = $52.50
𝟏𝟎%−𝟓%
The price of the stock in year 0:
𝑫𝟏 𝑫𝟐 𝑫𝟑 𝑷𝟑
Present value = + + +
(𝟏+𝑹)𝟏 (𝟏+𝑹)𝟐 (𝟏+𝑹)𝟑 (𝟏+𝑹)𝟑
$𝟏 $𝟐 $𝟐.𝟓 $𝟓𝟐.𝟓𝟎
= + + + = $43.88
𝟏.𝟏𝟏 𝟏.𝟏𝟐 𝟏.𝟏𝟑 𝟏.𝟏𝟑
I.5/ Case 5: infinite periods with steady dividend

Giả sử thay vì 1 hay 3 năm period như trường hợp 1 và 2, ta mua cổ phiếu với dự kiến sẽ nắm giữ
cổ phiếu và không bao giờ bán và we expect a same dividend of $10 every year to forever.
As 𝐷1 = 𝐷2 =𝐷3 =….
𝑷𝟎 = 𝑃𝑛 = 0 as we will never sell the stock
Example: Imagine that you are considering buying a share of stock today and keep forever. You
expect that the stock will pay a $10 per share dividend at the end of each year to forever. If you
require a 25 percent return on your investment, what is the most you would pay for the stock?
Solve:
If you buy the stock today keep it to eternity. At 25 percent:
$10
Present value = = $40
25%
Therefore, $40 is the value you would assign to the stock

today.
I.6/ Case 6: Two-stages Growth

Giả sử ta mua cổ phiếu với dự kiến sẽ nắm giữ cổ phiếu và we expect there will be nhiều chu kỳ
tăng trưởng của dividend.
Tương tự Tương tự
Chapter 4 trường hợp 3
Example: Imagine that you are considering buying a share of stock today and keep forever. You
expect that the stock dividend will increase by 20% annually for the next 5 years and then
increase by 4% forever. If you require a 10% return on your investment, what is the most you
would pay for the stock? The dividend just paid was $2.
Solve:
We can start by calculating the stock price five years from now, 𝑷𝟓 :
𝐷6 𝐷5 𝑥 (1+𝑔2 ) 𝐷0 𝑥 (1+𝑔1 )𝑡 𝑥 (1+𝑔2 ) $2 X (1+20%)5 𝑥 (1+4%)

𝑃5 = = = = = $85.26
𝑅 − 𝑔2 𝑅 − 𝑔2 𝑅 − 𝑔2 10%−4%
We then plug this result into our two-stage growth formula to get the price today:
𝐷1 1+𝑔1 𝑡 𝑃𝑡
𝑃0 = x [1 − ( ) ]+
𝑅 − 𝑔1 1+𝑅 (1+𝑅)𝑡
𝐷 𝑥 (1+𝑔1 ) 1+𝑔1 𝑡 𝑃5 $2 𝑥 (1+20%) 1+20% 5 $85.26
= 0 x [1 − ( ) ]+ = x [1 − ( ) ] +
𝑅 − 𝑔1 1+𝑅 (1+𝑅)5 10% −20% 1+10% (1+10%)5
= $66.64
I. COMMON STOCK VALUATION 2. Required rate
II. Components of The Required rate

Ta có công thức cơ bản của dividend growth model:
This tells us that the total return, R, has two components:

D/ Po g
dividend yield Dividend growth rate or capital gains
Because this is calculated as the The dividend growth rate is also the rate
expected cash dividend divided by the at which the stock price grows, which
current price, it is conceptually similar can be interpreted as the capital gains
to the current yield on a bond. yield - the rate at which the value o the
investment grows.
*
115
I. COMMON STOCK VALUATION 2. Required rate
Example: suppose we observe a stock selling for $20 per share. The next dividend will be $1 per share. You think that
the dividend will grow by 10 percent per year more or less indefinitely. What return does this stock offer if this is correct?
Solve:
Notice that this $22 is $20 x 1.10, so the

stock price has grown by 10 percent as it
should.
If you pay $20 for the stock today, you
will get a $ 1 dividend at the end of the
year, and you will have a $22 - 20 = $2
gain. Your dividend yield is thus $ 1/20
= 5%.
Your capital gains yield is $2/20 = 10%,
so your total return would be 5% + 10%
= 15% ( tương đương total return là 3$,
trong đó $1 từ dividend và $2 từ capital
gain)
I. COMMON STOCK VALUATION 3. Using multiples
Since now, we evaluate stock value mostly according to its cashflow from dividend and
capital gains, but how about stock pay no dividends?
A common approach is to make use of the PE ratio, which is the ratio of a stock's price
per share to its earnings per share (EPS) over the previous year. The idea here is to
have some sort of benchmark or reference PE ratio, which we then multiply by
earnings to come up with a price:
Benchmark PE dựa trên 4 sources chính:

PE trailing (company's
PE forward (expected
PE of Market PE of Peers own historical
company performance)
performance)
Note: When we investing in stock, what we focus on is the future value of the stock rather than
the historical recording from Financial report (PE trailing), hence we might consider PE forward
(A PE ratio that is based on estimated future earnings is called a forward PE ratio)
❖ Ngoài ra, nếu Doanh nghiệp trong giai đoạn chưa tạo ra lợi nhuận có thể dùng benchmark của
thị trường về Price/Sale, Price/Book value, Price/market share, Price/total customer...
I. COMMON STOCK VALUATION 4. Enterprise Value Ratios
The PE ratio focuses on equity, but what if we want the value of the firm?
Use enterprise value:
E V = Market value of equity + Market value of debt − Cash.
Like P E, we compare the value to a measure of earnings. From a firm level, this is
E B I T D A, or earnings before interest, taxes, depreciation, and amortization.
E B I T D A represents a measure of total firm cash flow.
Enterprise value ratio = EV/EBITDA
118
I. COMMON STOCK VALUATION 5. Using Free Cash Flows
In Chapters 5 and 6 you learned that the value of a project (i.e., its NPV)
was the discounted value of the cash flows it generates.
The firm value is the consolidated present value of the cash flow from all
of its projects.
119
Summary of Stock Valuation
Case 1: 1 year period Case 5: Infinite periods with steady dividend
Case 2: multiple periods with different dividend growth Case 6: Two-stages Growth
rate before sold & Case 4: eternity periods with unequal
growth rate dividend - Nonconstant Growth
𝑃0
Case 3: eternity periods with equal growth rate

dividend - Constant Growth
Exercise
1/ The Brigapenski Co. has just paid a cash dividend of $2 per share. Investors require a
16 percent return from investments such as this. If the dividend is expected to grow at a
steady 8 percent per year, what is the current value of the stock? What will the stock be
worth in five years?
Solve:
Based on the dividend growth model, The current price is:
The price in five years
• Hoặc có thể tính 𝑃5 đơn giản

bằng 𝑃0 * tốc độ tăng trưởng
Exercise
2/ Blackstone ltd. has just paid a cash dividend of $2 per share. Investors require a 16 percent
return from investments such as this. If the dividend is expected to grow 20% in the next 3
years before the growth rate falls to 8 percent indefinitely., what is the current value of the
stock? What will the stock be worth in five years?
Solve:
To calculate 𝑃0 , We'll need to calculate the dividends during the rapid growth period and the stock
price in three years
Step 2: The stock
Step 1: The dividends are:
price in three years
Step 3: The current price of the stock – 𝑃0

Quick Quiz
• What determines the price of a share of stock?

• What determines g and R in the D G M?
• Discuss the importance of valuation ratios.
• What are some of the major characteristics of N Y S E and Nasdaq?
124
THANKS!
Any questions?
125

Session 6. Bond and Stock Valuation H

Uploaded by

Copyright:

Available Formats

Session 6. Bond and Stock Valuation H

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Session 6. Bond and Stock Valuation H

Uploaded by

Copyright:

Available Formats

CORPORATE FINANCE

Lecturer: Long Tran Dinh

➢ What is Bond? Which are the Bond features?

⚫ Capital markets are markets for equity and debt

Treasury Notes and Bonds

Treasury Notes and Bonds (cont.)

Treasury Notes and Bonds (cont.)

Accrued Interest and Prices

⚫ Accrued interest must be paid by the buyer of a bond

⚫ The price of the bond with accrued interest is called the

Bond is the debt securities issued by corporation or government who wish

Some important terms of Bond:

Face value (Par

Credit rating The classification of the bond in term of its risk,

The number of The market

PV of the annuity stream PV of the principal in the

Bond Example: Calculator

 The bond value is now less then the face

 Therefore, the bond should sell for about

 The differentiation of 1000-884.82=$115 can be denoted

 Therefore, the bond should sell for about $1,136. We

YTM and Bond Value

When the YTM > coupon, the bond trades at a discount.

Semi-annual Bond: coupon is paid every 6 month or twice a year

 The bond value is now lower then the face value

Semi-annual Bond: coupon is paid every 6 month or twice a year

This sensitivity directly depends on two things:

Interest Rate Risk & Time to Maturity

❖ Even a small change in the interest rate,

❖ Bonds with lower coupons have greater interest

A note of Normal Yield Curve

• A yield curve is a graph that

Yield to maturity (YTM) is the total expected return for an

Computing Yield to Maturity

• Yield to maturity is the rate implied by the current bond price.

Y T M with Annual Coupons

Consider a bond with a 10 percent

Y T M with Semiannual Coupons

Suppose a bond with a 10 percent coupon rate and

• Is the YTM more or less than 10 percent?

Differentiation of major term of bond rate

Example of Current Yield and YTM

EXAMPLE Suppose we are interested in a six-year, 8 percent coupon bond.

Current Yield versus Yield to Maturity

1. Debt or equity: 2. The Indenture: 3. Registed form

The indenture of Registed

Suppose the Eight-Inch Nails (EIN)

Bond Pricing with a Spreadsheet 1

PRICE(Settlement, Maturity, Rate, Yld, Redemption,

YIELD(Settlement, Maturity, Rate, Pr, Redemption,

Settlement and maturity need to be actual dates.

The redemption and Pr need to given as % of par

Bond Pricing with a Spreadsheet 1

1. The holder has the right to redeem the note at par on

2. The coupon rate has a floor and a ceiling, meaning

3. A particularly interesting type of floating-rate bond is

Chapter 6 (cont.) INTEREST RATE & BOND VALUATION

• 6.2. Evaluate the risk in bond investing

The bond issuer is obligated to

Issuers must demonstrate that