BFF2140 Lecture 3: BFF2140 – Week 3 Lecture Valuation of Bonds and Equities
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, constant and varying growth. Comprehend the issues associated with the models employed in share valuation. The asx defines a bond as: a tradeable debt security, usually issued by a government or semi- government body to raise money. Holders of the bond have lent money for which they receive a fixed rate of interest over a set period of time. The bond is repaid with interest on the predetermined maturity date. Bonds can be traded on the share market. The principle: intrinsic value the value of financial securities = pv of all expected future cash flow. Thus, to value bonds or stocks, we need to estimate future cash flows: amount (how much) and, timing (when) Then discount future cash flows at an appropriate rate- the rate should be appropriate to the risk associated with the security.
