BFC2140 Lecture Notes - Lecture 3: Stock Valuation, Preferred Stock, Inverse Relation
28 Aug 2018
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Document Summary
Familiarity with bond concepts and a deeper comprehension of how interest rate risk impacts on bond pricing. Estimate the value of shares with zero, varying and constant growth. Comprehend the issues associated with the models employed in share valuation. Repayment of principal at maturity (value stated on bond) Valuing bonds: a bond will trade many times in its life and the price will change regularly, pure discount (zero-coupon) bonds, coupon bonds. If coupon rate = discount rate, then the bond trades at par i. e. price of the bond = face value. If coupon rate < discount rate, then the bond trades at a discount i. e. price of the bond < face value. If coupon rate > discount rate, then the bond trades at a premium i. e. price of the bond > face value: coupon rate stays the same but ytm changes according to market conditions, effective annual yield (eay) Interest rates should always be quoted on an annualised basis.
