Thus, the PV of the cash flows is as follows: As rates increase or decrease, the discount rate that is used also changes. We can also compute the change in value from an increase in the discount rate used in our example. Another property of PV is that the higher the discount rate, the lower the value of a bond; the lower the discount rate, the higher the value of the bond.
You are an intern with Sirius Satellite Radio in their corporate finance division. The firm anticipates an increase in its bond rating. Your boss wants you to determine the gain in the proceeds of the new issue if the issue is rated above the firm's current bond rating.
To prepare this information, you will have to determine Sirius' current debt rating and the yield curve for their particular rating. Begin by finding the current U. At the Treasury Web site www. There will likely be two links with the same title. The correct link is likely to be the first link on the page.
Download that table into Excel by right clicking with the cursor in the table and selecting "Export to Microsoft Excel. Find the current yield spreads for the various bond ratings.
Unfortunately, the current spreads are available only for a fee, so you will use old ones. Go to BondsOnline www. Find the current bond rating for Sirius. Use the credit rating for the organization, not the specific issue ratings. Return to Excel and create a timeline with the cash flows and discount rates you will need to value the new bond issue.
To create the required spot rates for Sirius' issue add the appropriate spread to the Treasury yield of the same maturity. Specifically, you do not have yields or spreads for four- six- eight- and nine-year maturities.
Fill these in by linearly interpolating the given yields and spreads. For example, the four-year spot rate and spread will be the average of the three- and five-year rates.
The six-year rate and spread will be the average of the five- and seven-year rates. For years 8and 9 you will have to spread the difference between years 7 and 10 across the two years.
Use the spot rates to calculate the present value of each cash flow paid to the bondholders.torosgazete.com is a platform for academics to share research papers.
In finance, valuation is the process of determining the present value (PV) of an asset. Valuations can be done on assets (for example, investments in marketable securities such as stocks, options, business enterprises, or intangible assets such as patents and trademarks) or on liabilities (e.g., bonds .
Principles of Finance. Table of Contents Introduction What is Finance History Valuing Bonds The Yield to Market Curve Advanced Concepts of Bonds Summary Chapter 5 Risk Management Summary Chapter 6 Corporate Finance Weighted Average Cost of Capital Beta and its Uses Return on Equity Modigliani & Miller Project Valuation Growth.
Table of contents for Principles of corporate finance / Richard A. Brealey, Stewart C.
Myers, Franklin Allen. Bibliographic record and links to related information available from the Library of Congress catalog. You are an intern with Sirius Satellite Radio in their corporate finance division.
The firm is planning to issue $50 million of 12% annual coupon bonds with a year maturity. The firm anticipates an . PRINCIPLES of CORPORATE FINANCE SIXTH EDITION RICHARD A. BREALEY SPECIAL ADVISER TO THE GOVERNOR, BANK OF ENGLAND Valuing Long-Lived Assets 35 Valuing Cash Flows in Several to Value Bonds 49 What Happens When Interest Rates Changel / .