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Saturday, August 11, 2012

PowerPoint Presentation On Valuation of Bonds and Shares

PPT On Valuation of Bonds and Shares

Presentation transcript:
1.Valuation of Bonds and Shares

Assets can be real or financial; securities like shares and bonds are called financial assets while physical assets like plant and machinery are called real assets. The concepts of return and risk, as the determinants of value, are as fundamental and valid to the valuation of securities as to that of physical assets.

3.Features of a Bond Face Value
Interest Rate—fixed or floating Maturity Redemption value Market Value

4.Bonds Values and Yields Bonds
with maturity Pure discount bonds Perpetual bonds

5.Bond with Maturity

6.Yield to Maturity
The yield-to-maturity (YTM) is the measure of a bond’s rate of return that considers both the interest income and any capital gain or loss. YTM is bond’s internal rate of return.

7.Current Yield
Current yield is the annual interest divided by the bond’s current value. Example: The annual interest is Rs 60 on the current investment of Rs 883.40. Therefore, the current rate of return or the current yield is: 60/883.40 = 6.8 per cent. Current yield does not account for the capital gain or loss.

8.For calculating the yield to call, the call period would be different from the maturity period and the call (or redemption) value could be different from the maturity value. Example: Suppose the 10% 10-year Rs 1,000 bond is redeemable (callable) in 5 years at a call price of Rs 1,050. The bond is currently selling for Rs 950.The bond’s yield to call is 12.7%.

9.Pure discount bond do not carry an explicit rate of interest. It provides for the payment of a lump sum amount at a future date in exchange for the current price of the bond. The difference between the face value of the bond and its purchase price gives the return or YTM to the investor.

10. Thank You.

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