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Valuation and Rate of Return 22 Bsa 03
Valuation and Rate of Return 22 Bsa 03
Valuation and Rate of Return 22 Bsa 03
RETURN
OUTLINE
• VALUATION OF BONDS
• VALUATION OF COMMON STOCK
• VLUATION OF PREFFERED STOCK
VALUATION OF BONDS
• Example:
• On March 1, 2013, Vernon Business. Inc. sold
face-value bonds worth 500,000 with a required
rate of 12%. The bonds will mature in 10 years
with 12% interest payable annually every January
1. What is the value of the bond?
VALUATION OF BONDS
• Answer:
VALUATION OF BONDS
• BOND DISCOUNT
• If the selling price of the bond is less than its
par value, the bond is said to be issued at a
discount.
VALUATION OF BONDS
• Example:
• On March 1, 2013, Vernon Business. Inc. sold
face-value bonds worth 500,000 with a required
rate of 12%. The bonds will mature in 10 years
with 10% interest payable annually every January
1. What is the value of the bond?
VALUATION OF BONDS
• BOND PREMIUM
• If the selling price of the bond is
greater than its par value, the bond is
said to be sold at a premium.
VALUATION OF BONDS
• Example:
• On March 1, 2013, Vernon Business. Inc. sold
face-value bonds worth 500,000 with a required
rate of 12%. The bonds will mature in 10 years
with 15% interest payable annually every January
1. What is the value of the bond?
VALUATION OF BONDS
(Required Rate of Return and Bond Price)
• If the required rate of return is not the same as the coupon rate, the
value of the bond decreases if it was issued at a premium or increases if
it was issued at a a discount.
• Example
• ABC Corporation issued a bond with a par value of
100,000. The coupon rate is 10% with interest
payable every year for 10 years. Determine the
value of the bond using the ff. required rate of
return: 6%, 7%, 8%, 9%, 10%, 11%, 12%, 13% 14%,
15%.
VALUATION OF BONDS
• Example :
• Mr. T purchased stock F at the beginning of the
year. The dividend at the end of the year is
expected to be P2.50 per share and the market
price is expected to be P60. If the investor
required rate of return is 15%, the value of the
stock is as follows:
THE GROWTH FACTOR
• I. NO GROWTH
• II. CONSTANT GROWTH
• III. VARIABLE GROWTH
NO GROWTH
• Example:
• Consider a stock that sells for P50.00. The Company is
expected to pay a P3.00 cash dividend at the end of the
year and the stock of the market price at the end of the
year is expected to be P55.00 a share. Thus, the
expected return is as follows:
OTHER VALUATION TECHNIQUES