ASSIGNMENT – 2

What do you understand by valuation? With the help of suitable example,

differentiate between the valuation of bond and equity share.

Valuation is define as the analytical process of determining the current worth

of an asset or a company. An analyst placing a value on a company looks at the
business's management, the composition of its capital structure, the prospect
of future earnings, and the market value of its asset valuation is the process of
determining the present value (PV) of an asset. Valuations can be done on
assets or on liabilities. Valuations are needed for many reasons such as
investment analysis, capital budgeting, merger and acquisition transactions,
financial reporting, taxable events to determine the proper tax liability.

Bond Valuation :
Bond valuation is a technique for determining the theoretical fair value of a
particular bond. Bond valuation includes calculating the present value of a
bond's future interest payments also known as its cash flow, and the bond's
value upon maturity also known as its face value or par value. Because a
bond's par value and interest payments are fixed, an investor uses bond
valuation to determine what rate of return is required for a bond investment
to be worthwhile.

C = future cash flows or coupon payments

r = discount rate or yield to maturity
F = face value of the bond
t = number of periods or years
T = time to maturity

Equity Share
An equity share is known as ordinary share is a part ownership where each
member is a fractional owner and initiates the maximum entrepreneurial
liability related to a trading concern. These types of shareholders in any
organization possess the right to vote. Equity shares are long-term financing
sources for any company. These shares are issued to the general public and are
non-redeemable in nature, share profits and claim assets of a company.

Types of Equity Share :

Authorized Share Capital-: This amount is the highest amount an organization
can issue. This amount can be changed time as per the companies
recommendation and with the help of few formalities.
Issued Share Capital- : This is the approved capital which an organization gives
to the investors.
Subscribed Share Capital- : This is a portion of the issued capital which an
investor accepts and agrees upon.
Paid Up Capital-: This is a section of the subscribed capital, that the investors
give. Paid-up capital is the money that an organization really invests in the
company’s operation.
Right Share-: These are those type of share that an organization issue to their
existing stockholders. This type of share is issued by the company to preserve
the proprietary rights of old investors.
Bonus Share-: When a business split the stock to its stockholders in the
dividend form, we call it a bonus share.
Sweat Equity Share-: This type of share is allocated only to the outstanding
workers or executives of an organization for their excellent work on providing
intellectual property rights to an organization.