Valuing Debt and Equity - منتدى المحاسبين المصريين

12-09-2012, 08:36 PM

ايمان حسن

تاريخ التسجيل: Sep 2007

العمر: 38

المشاركات: 1,853

Valuing Debt and Equity

Valuing Debt Securities (Bond Valuation)

A bond is a financial instrument that is issued by a company or government to investors. In return investors receive a coupon payment either annually or semi annually depending on the terms of the bond. In short investors lend companies and governments money in exchange for regular interest payments. On maturity the initial amount loaned is repaid to the investor. The present value of a bond can be determined by discounting all the future cash flows (the coupon payment) and the face value.

A bond can be broken down into several features. A bond has:

A coupon payment: Regular payments made by the borrower (company or government) to the lender (investor).

Face value: The amount that is repaid upon maturity of the bond.

Coupon rate: The rate of interest that is paid on the face value of the bond. (coupon payment divided by the face value).

Maturity: The bonds remaining life.

Interest rates and bond prices have an inverse relationship. When interest rates rise, the present value of the bond’s remaining cash flows decline, and the bond is worth less. When the interest rates fall, the bond is worth more.

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12-09-2012, 08:37 PM

ايمان حسن

تاريخ التسجيل: Sep 2007

العمر: 38

المشاركات: 1,853

مشاركة: Valuing Debt and Equity

aluing Equity Securities (Dividend Valuation Model)

The dividend valuation model is used to determine the intrinsic value of a company's share price, by discounting the value of future dividends to their present value. Using time value of money principles, we can determine the price of a stock today based on the discounted value of future cash flows. We refer to this price as the intrinsic value of the stock because it is the value of the stock that is perceived based on all available information.

If the intrinsic value of the stock is greater than the current market share price then the stock is undervalued. If the intrinsic value of the stock is less than the current market share price then the stock is overpriced.

The dividend valuation model can be modified for patterns including a constant dividend, a constantly growing dividend and a dividend that grows at different rate depending on the period in the future.

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