公司理財培訓資料英文版課件

BondMarketandAlternativeInvestmentRules3.1ValuationofBonds3.2TheTermStructureofInterestRates3.3AlternativeInvestmentRules (1)ThePaybackPeriodRule (2)TheAverageAccountingReturn (3)TheInternalRateofReturn (4)TheProfitabilityIndex3.4WhyUseNetPresentValue?(RWJCh.5,6)BondMarketandAlternativeIn3.1ValuationofBondsExample1：Supposeweobservethefollowingbondpricesfordefault-freezerocouponbonds(purediscountbond,withfacevalue$1,000)：Howarethebondpricesrelatedwithinterestrates?1yearzero:Price=9262yearzero:Price=8423yearzero:Price=7584yearzero:Price=6831yearbond2yearbond3yearbond4yearbondy1y2y3y4i1i2?i4?i3?(maturitydate)3.1ValuationofBondsExampleThePresentValueFormulasforBondsPureDiscountBondsLevelCouponBondsConsolsforT-maturitybondswithfacevalueF.Sucharateyisknownastheyieldtomaturity(YTM).Theyieldtomaturityisacomplicatedaverageofdifferentratesofinterest.Itcanbeausefulsummarymeasure.

‥‥‥‥‥‥‥‥‥‥(3.1)‥‥(3.2)‥‥‥‥‥‥‥‥‥‥‥‥(3.3)ThePresentValueFormulasforYieldtoMaturityExample1.(continued):wecanconvertbondpricesinto“yieldtomaturity”() hence,

yn=yieldofbondswithnperiodsastimetomaturity,alsocalled“spotrates.”Plotynagainsttimetomaturity(n)”yieldcurve”tosummarizeinformationaboutbondprices(diagram1).

YieldtoMaturityExample1.(co3.2TheTermStructureofInterestRatesFrombondprices,wecancomputeyields,plotthe“yieldcurve”,andcomputetheimpliedforwardrates,.implied“forwardrates”yieldcurveor“spotrates”3.2TheTermStructureofInteForwardRatesisthe“break-even”interestratethatequatesthereturnsonan-periodbondtothatofa(n–1)periodbondrolledoverintoaone-yearbondinyearn.

Forexample,,(geometricmean)or,so asanapproximation(arithmeticmean).Similarly,ForwardRatesisthe“breForecastofFutureInterestCanweuseforwardratesfntoforecastfutureshort-terminterestratesin,alsocalled“shortrates”？Assumethattheinvestmenthorizonisoneyear,andinvestorsareriskneutral.Example2:Considertwoinvestmentalternatives：(A)buy1-yearzero-couponbond(safe,norisk).(B)buy2-yearzero-couponbondandsellitattheendof1styear(risky,subjecttopriceriskattheendof1styear.)842 ? 1000

926 1000

(A)

(B)

i2=?

ForecastofFutureInterestCanPureExpectationHypothesisExpectedreturnof(A)Expectedreturnof(B)Assumethatinvestorsarerisk-neutral.Thesetwoexpectedreturnsshouldbethesame(donotworryaboutdifferentrisksinvolvedin(A)and(B))： andweknowSo ,henceTheforwardratesaremarketexpectationsoffutureshort-terminterestrates.ThisiscalledthePureExpectationsHypothesis： …….……...…….……..(3.4)PureExpectationHypothesisExpLiquidityPreferenceHypothesis

AssumeinvestorsareRiskaverse.Stillwithone-yearinvestmenthorizon(preferencefor“l(fā)iquidity”).Since(B)isriskier,(B)shouldhavehigherexpectedreturntoattractinvestors：.Hence.TheLiquidityPreference

Hypothesis: +riskpremium=f2.

Ingeneral,fn-riskpremium=.…….……..(3.5)

LiquidityPreferenceHypothesi3.3AlternativeInvestmentRulesHowlongdoesittaketheprojectto“payback”itsinitialinvestment?PaybackPeriod=numberofyearstorecoverinitialcostsMinimumAcceptanceCriteria:setbymanagementRankingCriteria:setbymanagement(1)ThePaybackPeriodRule3.3AlternativeInvestmentRul(1)ThePaybackPeriodRule(continued)Disadvantages:IgnoresthetimevalueofmoneyIgnorescashflowsafterthepaybackperiodBiasedagainstlong-termprojectsRequiresanarbitraryacceptancecriteriaAprojectacceptedbasedonthepaybackcriteriamaynothaveapositiveNPVAdvantages:EasytounderstandBiasedtowardliquidity(1)ThePaybackPeriodRule(cTheDiscountedPaybackPeriodRuleHowlongdoesittaketheprojectto“payback”itsinitialinvestmenttakingthetimevalueofmoneyintoaccount?Bythetimeyouhavediscountedthecashflows,youmightaswellcalculatetheNPV.TheDiscountedPaybackPeriod(2)TheAverageAccountingReturnRuleAnotherattractivebutfatallyflawedapproach.RankingCriteriaandMinimumAcceptanceCriteriasetbymanagementDisadvantages:IgnoresthetimevalueofmoneyUsesanarbitrarybenchmarkcutoffrateBasedonbookvalues,notcashflowsandmarketvaluesAdvantages:TheaccountinginformationisusuallyavailableEasytocalculate(2)TheAverageAccountingRet(3)TheInternalRateofReturn(IRR)RuleIRR:thediscountthatsetsNPVtozeroMinimumAcceptanceCriteria:AcceptiftheIRRexceedstherequiredreturn.RankingCriteria:SelectalternativewiththehighestIRRReinvestmentassumption:AllfuturecashflowsassumedreinvestedattheIRR.Disadvantages:Doesnotdistinguishbetweeninvestingandborrowing.IRRmaynotexistortheremaybemultipleIRRProblemswithmutuallyexclusiveinvestmentsAdvantages:Easytounderstandandcommunicate(3)TheInternalRateofRetu(3)TheInternalRateofReturn:ExampleExample3Considerthefollowingproject:0123$50$100$150-$200Theinternalrateofreturnforthisprojectis19.44%(3)TheInternalRateofReturTheNPVPayoffProfileforThisExampleIfwegraphNPVversusdiscountrate,wecanseetheIRRasthex-axisintercept.IRR=19.44%TheNPVPayoffProfileforThiProblemswiththeIRRApproachMultipleIRRs.AreWeBorrowingorLending?TheScaleProblem.TheTimingProblem.ProblemswiththeIRRApproachMultipleIRRsExample4:TherearetwoIRRsforthisproject:0 1 2 3$200 $800-$200-$800100%=IRR20%=IRR1Whichoneshouldweuse?MultipleIRRsExample4:ThereTheScaleProblemWouldyourathermake100%or50%onyourinvestments?Whatifthe100%returnisona$1investmentwhilethe50%returnisona$1,000investment?TheScaleProblemWouldyouratTheTimingProblem0 1 2 3$10,000$1,000 $1,000-$10,000ProjectA0 1 2 3$1,000 $1,000 $12,000-$10,000ProjectBThepreferredprojectinthiscasedependsonthediscountrate,nottheIRR.Example5:TheTimingProblem0 1 TheTimingProblem10.55%=crossoverrate12.94%=IRRB16.04%=IRRAExample5:TheTimingProblem10.55%=croCalculatingtheCrossoverRateComputetheIRRforeitherproject“A-B”or“B-A”10.55%=IRRExample5:CalculatingtheCrossoverRateMutuallyExclusivevs.IndependentProjectMutuallyExclusiveProjects:onlyONEofseveralpotentialprojectscanbechosen,e.g.acquiringanaccountingsystem.RANKallalternativesandselectthebestone.IndependentProjects:acceptingorrejectingoneprojectdoesnotaffectthedecisionoftheotherprojects.MustexceedaMINIMUMacceptancecriteria.MutuallyExclusivevs.Indepen(4)TheProfitabilityIndex(PI)RuleMinimumAcceptanceCriteria:AcceptifPI>1RankingCriteria:SelectalternativewithhighestPIDisadvantages:ProblemswithmutuallyexclusiveinvestmentsAdvantages:MaybeusefulwhenavailableinvestmentfundsarelimitedEasytounderstandandcommunicateCorrectdecisionwhenevaluatingindependentprojects(4)TheProfitabilityIndex(P3.4WhyUseNetPresentValue?AcceptingpositiveNPVprojectsbenefitsshareholders.NPVusescashflowsNPVusesallthecashflowsoftheprojectNPVdiscountsthecashflowsproperly3.4WhyUseNetPresentValue?TheNetPresentValue(NPV)RuleNetPresentValue(NPV)=TotalPVoffutureCF’s+InitialInvestmentEstimatingNPV:1.Estimatefuturecashflows:howmuch?andwhen?2.Estimatediscountrate3.EstimateinitialcostsMinimumAcceptanceCriteria:AcceptifNPV>0RankingCriteria:ChoosethehighestNPVTheNetPresentValue(NPV)RuGoodAttributesoftheNPVRule1.Usescashflows2.UsesALLcashflowsoftheproject3.DiscountsALLcashflowsproperlyReinvestmentassumption:theNPVruleassumesthatallcashflowscanbereinvestedatthediscountrate.GoodAttributesoftheNPVRulThePracticeofCapitalBudgetingVariesbyindustry:Somefirmsusepayback,othersuseaccountingrateofreturn.ThemostfrequentlyusedtechniqueforlargecorporationsisIRRorNPV.ThePracticeofCapitalBudgetBondMarketandAlternativeInvestmentRules3.1ValuationofBonds3.2TheTermStructureofInterestRates3.3AlternativeInvestmentRules (1)ThePaybackPeriodRule (2)TheAverageAccountingReturn (3)TheInternalRateofReturn (4)TheProfitabilityIndex3.4WhyUseNetPresentValue?(RWJCh.5,6)BondMarketandAlternativeIn3.1ValuationofBondsExample1：Supposeweobservethefollowingbondpricesfordefault-freezerocouponbonds(purediscountbond,withfacevalue$1,000)：Howarethebondpricesrelatedwithinterestrates?1yearzero:Price=9262yearzero:Price=8423yearzero:Price=7584yearzero:Price=6831yearbond2yearbond3yearbond4yearbondy1y2y3y4i1i2?i4?i3?(maturitydate)3.1ValuationofBondsExampleThePresentValueFormulasforBondsPureDiscountBondsLevelCouponBondsConsolsforT-maturitybondswithfacevalueF.Sucharateyisknownastheyieldtomaturity(YTM).Theyieldtomaturityisacomplicatedaverageofdifferentratesofinterest.Itcanbeausefulsummarymeasure.

‥‥‥‥‥‥‥‥‥‥(3.1)‥‥(3.2)‥‥‥‥‥‥‥‥‥‥‥‥(3.3)ThePresentValueFormulasforYieldtoMaturityExample1.(continued):wecanconvertbondpricesinto“yieldtomaturity”() hence,

yn=yieldofbondswithnperiodsastimetomaturity,alsocalled“spotrates.”Plotynagainsttimetomaturity(n)”yieldcurve”tosummarizeinformationaboutbondprices(diagram1).

YieldtoMaturityExample1.(co3.2TheTermStructureofInterestRatesFrombondprices,wecancomputeyields,plotthe“yieldcurve”,andcomputetheimpliedforwardrates,.implied“forwardrates”yieldcurveor“spotrates”3.2TheTermStructureofInteForwardRatesisthe“break-even”interestratethatequatesthereturnsonan-periodbondtothatofa(n–1)periodbondrolledoverintoaone-yearbondinyearn.

Forexample,,(geometricmean)or,so asanapproximation(arithmeticmean).Similarly,ForwardRatesisthe“breForecastofFutureInterestCanweuseforwardratesfntoforecastfutureshort-terminterestratesin,alsocalled“shortrates”？Assumethattheinvestmenthorizonisoneyear,andinvestorsareriskneutral.Example2:Considertwoinvestmentalternatives：(A)buy1-yearzero-couponbond(safe,norisk).(B)buy2-yearzero-couponbondandsellitattheendof1styear(risky,subjecttopriceriskattheendof1styear.)842 ? 1000

926 1000

(A)

(B)

i2=?

ForecastofFutureInterestCanPureExpectationHypothesisExpectedreturnof(A)Expectedreturnof(B)Assumethatinvestorsarerisk-neutral.Thesetwoexpectedreturnsshouldbethesame(donotworryaboutdifferentrisksinvolvedin(A)and(B))： andweknowSo ,henceTheforwardratesaremarketexpectationsoffutureshort-terminterestrates.ThisiscalledthePureExpectationsHypothesis： …….……...…….……..(3.4)PureExpectationHypothesisExpLiquidityPreferenceHypothesis

AssumeinvestorsareRiskaverse.Stillwithone-yearinvestmenthorizon(preferencefor“l(fā)iquidity”).Since(B)isriskier,(B)shouldhavehigherexpectedreturntoattractinvestors：.Hence.TheLiquidityPreference

Hypothesis: +riskpremium=f2.

Ingeneral,fn-riskpremium=.…….……..(3.5)

LiquidityPreferenceHypothesi3.3AlternativeInvestmentRulesHowlongdoesittaketheprojectto“payback”itsinitialinvestment?PaybackPeriod=numberofyearstorecoverinitialcostsMinimumAcceptanceCriteria:setbymanagementRankingCriteria:setbymanagement(1)ThePaybackPeriodRule3.3AlternativeInvestmentRul(1)ThePaybackPeriodRule(continued)Disadvantages:IgnoresthetimevalueofmoneyIgnorescashflowsafterthepaybackperiodBiasedagainstlong-termprojectsRequiresanarbitraryacceptancecriteriaAprojectacceptedbasedonthepaybackcriteriamaynothaveapositiveNPVAdvantages:EasytounderstandBiasedtowardliquidity(1)ThePaybackPeriodRule(cTheDiscountedPaybackPeriodRuleHowlongdoesittaketheprojectto“payback”itsinitialinvestmenttakingthetimevalueofmoneyintoaccount?Bythetimeyouhavediscountedthecashflows,youmightaswellcalculatetheNPV.TheDiscountedPaybackPeriod(2)TheAverageAccountingReturnRuleAnotherattractivebutfatallyflawedapproach.RankingCriteriaandMinimumAcceptanceCriteriasetbymanagementDisadvantages:IgnoresthetimevalueofmoneyUsesanarbitrarybenchmarkcutoffrateBasedonbookvalues,notcashflowsandmarketvaluesAdvantages:TheaccountinginformationisusuallyavailableEasytocalculate(2)TheAverageAccountingRet(3)TheInternalRateofReturn(IRR)RuleIRR:thediscountthatsetsNPVtozeroMinimumAcceptanceCriteria:AcceptiftheIRRexceedstherequiredreturn.RankingCriteria:SelectalternativewiththehighestIRRReinvestmentassumption:AllfuturecashflowsassumedreinvestedattheIRR.Disadvantages:Doesnotdistinguishbetweeninvestingandborrowing.IRRmaynotexistortheremaybemultipleIRRProblemswithmutuallyexclusiveinvestmentsAdvantages:Easytounderstandandcommunicate(3)TheInternalRateofRetu(3)TheInternalRateofReturn:ExampleExample3Considerthefollowingproject:0123$50$100$150-$200Theinternalrateofreturnforthisprojectis19.44%(3)TheInternalRateofReturTheNPVPayoffProfileforThisExampleIfwegraphNPVversusdiscountrate,wecanseetheIRRasthex-axisintercept.IRR=19.44%TheNPVPayoffProfileforThiProblemswiththeIRRApproachMultipleIRRs.AreWeBorrowingorLending?TheScaleProblem.TheTimingProblem.ProblemswiththeIRRApproachMultipleIRRsExample4:TherearetwoIRRsforthisproject:0 1 2 3$200 $800-$200-$800100%=IRR20%=IRR1Whichoneshouldweuse?MultipleIRRsExample4:ThereTheScaleProblemWouldyourathermake100%or50%onyourinvestments?Whatifthe100%returnisona$1investmentwhilethe50%returnisona$1,000investment?TheScaleProblemWouldyouratTheTimingProblem0 1 2 3$10,000$1,000 $1,000-$10,000ProjectA0 1 2 3$1,000 $1,000 $12,000-$10,000ProjectBThepreferredprojectinthiscasedependsonthediscountrate,nottheIRR.Example5:TheTimingProblem0 1 TheTimingProblem10.55%=crossoverrate12.94%=IRRB16.04%=IRRAExample5:TheTimingProblem10.55%=croCalculatingtheCrossoverRateComputetheIRRforeitherproject“A-B”or“B-A”10.55%=IRRExample5:CalculatingtheCrossoverRateMutuallyExclusivevs.IndependentProj