You are on page 1of 9

Attempts on Teaching Week 6 - How To Value Bonds & Stocks

Q in slide 32 - calculate Yield to Maturity


Answer 13.22%

Q in Slide 54 - calculate share in Lamaro's worth today


Answer $200.13
0

15%
Step 1
Step 2
Step 3
Step 4

calculate D1, D2, D3, D4


calculate P5
Determine PV of each
sum all

D0=$3

k=8%

D1 = D0(1+g)^1
D2 = D0(1+g)^2
D3 = D0(1+g)^3
D4 = D0(1+g)^4
P5 = D4/(R-g)

9%

6%

P4 = D5/(R-g)
$3*(1.15)^1
$3*(1.15)^2
$3*(1.09)^3
$3*(1.09)^4
(4.23*1.06^1)/(0.08-0.06)

P0
3.194444
P0=3.19+3.4+3.088+3.109+2.804

3.403635

$3.45
$3.97
$3.89
$4.23
$224.19
3.088007

3.109176

infinity

2.804003

coupon rate
coupon (paid quarterly)
n (years)
i.e. number of coupon payments
price of bond
fv

period
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

$
$

12%
30
7
28
972
1,000

outflows

inflows
coupons

-972.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00

3.15%
inflows
face value

1,000.00

overall
cash flow
-972.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
1,030.00

This last column is what you would put in your calculator, and it will return
quarterly period of ) of 3.15%.
i.e. n = 30, pv = -972, pmt = 30 & fv = 1000 ==> compute i , to get 3.15
This is a quarterly rate , so the Nominal Rate is 3.15 * 4 = 12.60%.
But we need to work out the EAR!
ie

(1 + 12.6/400)4 = (1 + EAR)

ulator, and it will return a rate (for the

mpute i , to get 3.15

* 4 = 12.60%.

Attempts on Teaching Week 6 - How To Value Bonds & Stocks


Q in slide 32 - calculate Yield to Maturity
Answer 13.22%

Q in Slide 54 - calculate share in Lamaro's worth today


Answer $200.13

NPV (of the perpetual cash flow)


Total

Attempts on Teaching Week 6 - How To Value Bonds & Stocks


Q in slide 32 - calculate Yield to Maturity
Answer 13.22%

Q in Slide 54 - calculate share in Lamaro's worth today


Answer $200.13
CASH FLOW's===>>>>
NPV's===>>>>

D0
3

D1
3.45

3 3.194444 3.401492 3.432987

15%

Putting it all together


NPV (of the cash flows - EXLUDING THE PERPETUITY)
NPV (of the perpetual cash flow)
Total

D2
D3
3.9675 4.324575

$ 16.49
$ 183.63
$ 200.13

9%

PERPETUITY CALCULATIONS
The present value of the perpetual cash flow using the formula C / R - g)
C =
4.996614
r =
0.08
g =
0.06
PV4 =
249.8307 (this is the present value of the perpetuity at time t= 4)

PV0 =

183.63 (discount PV4 to time t = 0)

D4
D5
4.713787 4.996614
3.464774

6%

6
infinity

ONS

You might also like