1) The face value of 10 year 10% bond ( with 10 coupon rate interest ) is Rs 1,000 . Assuming 12 % required rate of return of investors , compute the value of the bond. What price would the investor be willing to pay , if the interest is payable annually.

2) Assume i) Rs.100 par value ii)8% coupon rate of interest and iii)10 years remaining to maturity date; If interest rate is paid annually find the value of bond when required rate of return is i)7% ii) 8 % and iii) 9% indicate the nature of selling the bond either at discount/ premium/par

3)The share of a certain stock paid a dividend of Rs.2.00 last year (D0=Rs.2.00) The dividend is expected to grow at a constant rate of 6 percent rate in the future . The required rate of return on this stock is considered to be 12 percent . How much the stock should sell right now ? Assuming that the expected growth rate and required rate of return remain the same at what price should the stock sell 2 years hence?

4) The bonds of the premier company ltd are currently selling for Rs.10,800 Assuming i) coupon rate of interest 10 % ii) par value Rs.10,000 iii) years to maturity 10 years iv) annual payment . Compute the YTM

5) IDBI, in its issue of Flexibonds-3 offered growing interest bond . The interest will be paid to the investors every year at the rates given below and the minimum deposit is Rs.5,000 . Calculate the yield to Maturity (YTM)

| |Interest Per Annum | |Year 1 |10.5 | |Year 2 |11.00 | |Year 3 |12.50 | |Year 4...

...MBA 8135
Practice Bond ValuationProblems
SOLUTIONS
1. Calculate the current price of a $1,000 par value bond that has a coupon rate of 6% p.a., pays coupon interest annually, has 14 years remaining to maturity, and has a yield to maturity of 8 percent.
PMT = 60; FV = 1000; N = 14; I = 8; CPT PV = 835.12
2. You intend to purchase a 10-year, $1,000 par value bond that pays interest of $60 every six months. If the yield to maturity is 10% with semiannual compounding, how much should you be willing to pay for this bond?
FV = 1000; PMT = 60; N = 20; I = 10/2=; CPT PV = 1124.62
3. What is the price of a $5000 par value bond, with a coupon rate of 7.5% (coupon interest paid quarterly), 15 years remaining to maturity and a yield to maturity of 8.25%?
FV = 5000; PMT = 93.75; N = 60; I = 8.25/4=; CPT PV = 4678.99
4. Dak, Inc. has a bond outstanding with a par value of $10,000 that makes monthly coupon payments. The coupon rate is 9 percent and the bond has 24 years remaining to maturity. If the yield to maturity of similar bonds is 9.35 percent, what is the current price of the bond?
FV = 10000; PMT = 75; N = 288; I = 9.35/12=; CPT PV = 9665.71
5. A ten year bond with a coupon rate of 12% (payable annually) and a par value of $1,000 is selling for $1,192.50 today. What is the bond’s yield to maturity?
PV = -1192.50; PMT = 120; FV = 1000; N = 10; CPT I/Y = YTM = 9.00%
6. What is the yield to maturity of a 20 year, $100 par value bond, that...

...Valuation of securities:
RBI has issued guidelines for valuing both the quoted and unquoted securities.
Valuation of Quoted Securities:
The market value for the purpose of periodical valuation of investments included in the Available for Sale and the Held for trading categories would be the market price of the scrip from any of the following sources:
• Quotes/Trades on the Stock exchanges
• SGL Account transactions
• Price list of RBI
• Prices declared by Primary Dealers Association of India (PDAI) jointly with FIMMDA
Valuation of Unquoted SLR Securities:
Central Govt. Securities should be valued on the basis of the prices/ YTM rates put out by the PDAI/ FIMMDA at periodical intervals. The 6.00 per cent Capital Indexed Bonds may be valued at “cost” and Treasury Bills should be valued at carrying cost.
State Government securities as well as the other approved securities will be valued applying the YTM method by marking it up by 25 basis points above the yields of the Central Government Securities of equivalent maturity put out by PDAI/ FIMMDA periodically.
Valuation of Unquoted Non-SLR Securities:
DEBENTURES/BONDS:
All debentures/ bonds other than debentures/ bonds which are in the nature of advance should be valued on the YTM basis. Such debentures/...

...Equity Valuation: Discounted Cash Flow and Residual Income Models
Introduction
Valuation plays a very important role when companies are trying to increase their value, raise money, acquire another firm or sell a subsidiary, also when a company decides to go public.
Managers, investors and shareholders need to have the most accurate and reliable information in order to make decisions, that is why valuation is a fundamental exercise in corporate finance.
It is pretty evident that whatever the reason, sooner or later there will be a question of how much a firm is worth and very often the answer will not be easy.
Hamadi and Hamadeh (2012, p.104) claim that “determining firm’s value has recently become more problematic”.
Valuation is, indeed, a complicated task. It requires taking in consideration a variety of factors, making a number of assumptions and calculations and of course selecting the most appropriate valuation approach. Equity Valuation is the process of estimating the value held by a firm’s equity holders; it should not be confused with Enterprise Valuation, which is the total value of a firm. They are two different values from two different concepts. By having a clear understanding of it, we will be able to incorporate the appropriate cash flows and discount rates to our valuation analysis.
Analysis
Discounted Cash Flow Models...

...Valuation :
* Price earnings ratio :
DESCRIPTION | Mar-12 | Mar-11 | Mar-10 | Mar-09 | Mar-08 |
Price-earnings ratio | 23.04 | 24.23 | 12.71 | 7.25 | 12.17 |
This ratio reflects the following factors : growth prospects, risk characteristics ,shareholder orientation ,corporate image and the degree of liquidity.It indicates company performance and forecast future performance.Ratio is decreasing and it is good sign because investors will get high earnings.But risk will be also high because of more uncertainity.So If high P/E ratio than risk will be less.It is high for last two years so investors will have less risk and good return in future.
* Yield :
DESCRIPTION | Mar-12 | Mar-11 | Mar-10 | Mar-09 | Mar-08 |
Yield(%) | 1.37 | 1.25 | 0.85 | 1.63 | 1.41 |
It attracts investors if it is high. It shows the rate of return actually earned by equity shareholders. Investors who require a minimum stream of cash flow from their investment portfolio to secure cash flow use stable yield stocks.It is marginally increased so good for such investors.
* Market value to book value ratio :
DESCRIPTION | Mar-12 | Mar-11 | Mar-10 | Mar-09 | Mar-08 |
P/B ratio | 4.45 | 5.51 | 5.92 | 2.93 | 5.47 |
It shows the contribution of a firm to the wealth of the society.Lower ratio is bad indicator.Here ratio is 4.45 in this year.It shows valuation of stock.Lower value of P/B ratio could mean that it is...

...VALUATION TECHNIQUES
Vault Guide to Finance Interviews Valuation Techniques
How Much is it Worth?
Imagine yourself as the CEO of a publicly traded company that makes widgets. You’ve had a highly successful business so far and want to sell the company to anyone interested in buying it. How do you know how much to sell it for? Likewise, consider the Bank of America acquisition of Fleet. How did B of A decide how much it should pay to buy Fleet? For starters, you should understand that the value of a company is equal to the value of its assets, and that Value of Assets = Debt + Equity or Assets = D + E If I buy a company, I buy its stock (equity) and assume its debt (bonds and loans). Buying a company’s equity means that I actually gain ownership of the company – if I buy 50 percent of a company’s equity, I own 50 percent of the company. Assuming a company’s debt means that I promise to pay the company’s lenders the amount owed by the previous owner. The value of debt is easy to calculate: the market value of debt is equal to the book value of debt. (Unless the debt trades and thus has a real “market value.” This information, however, is hard to come by, so it is safe to use the book value.) Figuring out the market value of equity is trickier, and that’s where valuation techniques come into play. The four most commonly used techniques are: 1. 2. 3. 4. Discounted cash flow (DCF) analysis Multiples method Market...

...Expenditure are estimated by Bloomberg and adjusted in order to consider the cyclical aspect of the investments:
Finally, when a company is mature, it doesn't need as much growth Capex to continue on its current path as it did when it was less mature. It only needs enough to offset how much they're losing through depreciation. That is why D&A and Capex converge over time.
Changes in Working Capital are estimated by Bloomberg:
III - DISCOUNTED CASH FLOW
FirmValuation
The unstable historical leverage of Amazon as well as the fact that the company never declared or paid cash dividends on their common stock, encourages us to use a Firm Valuation.
Weighted Average Cost of Capital
Beta
A sample of peers is determined in order to calculate an average Beta for the sector. Thus, we have chosen American companies that evolve on the retail segment and provide third-party services (source: Bloomberg). A brief description of these comparables can be found in the Appendix 1 and will be used later on for relative valuation. Their tax rate is the US Federal corporate income tax provided by Deloitte in 2012. Finally, a weighted average Unlevered Beta is calculated in order to take into consideration how similar the company is to Amazon.
Tax rate
The historical tax rate of Amazon proves to be very unstable therefore we have decided to use the historical average between 2007-2012 as a perpetual tax rate.
WACC -...

...CHAPTER 4 BONDS ANND THEIR VALUATION
Bond value--semiannual payment 1. You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every 6 months. If your nominal annual required rate of return is 10 percent with semiannual compounding, how much should you be willing to pay for this bond?
N = 20 I/Y = 5 PV = -1124.62 PMT = 60 FV = 1000 Bond value--semiannual payment 2. Assume that you wish to purchase a 20-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $40. If you require a 10 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?
N = 40 I/Y = 5 PV = -828.41 PMT = 40 FV = 1000
Bond value--semiannual payment 3. A bond that matures in 12 years has a 9 percent semiannual coupon (i.e., the bond pays a $45 coupon every six months) and a face value of $1,000. The bond has a nominal yield to maturity of 8 percent. What is the price of the bond today?
N = 24 I/Y = 4 PV = -1076.23 PMT = 45 FV = 1000
Bond value--semiannual payment 4. A corporate bond with a $1,000 face value pays a $50 coupon every six months. The bond will mature in 10 years, and has a nominal yield to maturity of 9 percent. What is the price of the bond?
N = 20 I/Y = 4.5 PV = -1065.04 PMT = 50 FV = 1000
Yield to maturity--semiannual bond 5. A corporate bond has a face value of $1,000, and pays a $50 coupon every six months (that is, the bond has a...

...Assignment no. 1
Fixed Income Securities and Markets
Question A.1
Given the following bond:
|starting date |30/09/2011 |
|maturity date |30/09/2014 |
|coupon rate |4.00% |
|coupon frequency |annual |
|day count |act/act |
|nominal value |100 |
a) Calculate the price of the security on the 30/09/2011, if the yield to maturity is 5% (NB: Price=PV of future cash flows).
b) Given the price and the yield to maturity of the bond, calculate the three components of the (expected) total return of this investment (if you invest 100 Euro).
c) What will be the price of this bond after one year (on 30/09/2012) if its yield to maturity is 3%?
d) If on 30/09/2012 you decide to sell the bond at the price calculated in the previous question, what will be the return of your investment? How this differs from the expected return calculated in (b)? Comment.
Solution
a) Using the pricing formula for bonds:
[pic]
b) The three different components are:
a. Coupon: holding the bond until maturity, the investor will receive three coupons of size 4 Euro, therefore the coupon component will be nC=12
b. Capital gain: it is the difference between the price at maturity and the price at purchase, equal to 100-97.26= 2.74...

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