第五章 债券和股票的定价

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1. Chapter Outline5.1 Definition and Example of a Bond 5.2 How to Value Bonds 5.3 Bond Concepts 5.4 The Present Value of Common Stocks 5.5 Estimates of Parameters in the Dividend-Discount Model 5.6 Growth Opportunities 5.7 The Dividend Growth Model and the NPVGO Model (Advanced) 5.8 Price Earnings Ratio 5.9 Stock Market Reporting 5.10 Summary and Conclusions
2. Valuation of Bonds and StockFirst Principles: Value of financial securities = PV of expected future cash flows To value bonds and stocks we need to: Estimate future cash flows: Size (how much) and Timing (when) Discount future cash flows at an appropriate rate: The rate should be appropriate to the risk presented by the security.
3. 5.1 Definition and Example of a BondA bond is a legally binding agreement between a borrower and a lender: Specifies the principal amount of the loan. Specifies the size and timing of the cash flows: In dollar terms (fixed-rate borrowing) As a formula (adjustable-rate borrowing)
4. 5.1 Definition and Example of a BondConsider a U.S. government bond listed as 6 3/8 of December 2009. The Par Value of the bond is $1,000. Coupon payments are made semi-annually (June 30 and December 31 for this particular bond). Since the coupon rate is 6 3/8 the payment is $31.875. On January 1, 2002 the size and timing of cash flows are:
5. 5.2 How to Value BondsIdentify the size and timing of cash flows. Discount at the correct discount rate. If you know the price of a bond and the size and timing of cash flows, the yield to maturity is the discount rate.
6. Pure Discount BondsInformation needed for valuing pure discount bonds: Time to maturity (T) = Maturity date - today’s date Face value (F) Discount rate (r) Present value of a pure discount bond at time 0:
7. Pure Discount Bonds: ExampleFind the value of a 30-year zero-coupon bond with a $1,000 par value and a YTM of 6%.
8. Level-Coupon BondsInformation needed to value level-coupon bonds: Coupon payment dates and time to maturity (T) Coupon payment (C) per period and Face value (F) Discount rateValue of a Level-coupon bond = PV of coupon payment annuity + PV of face value
9. Level-Coupon Bonds: ExampleFind the present value (as of January 1, 2002), of a 6-3/8 coupon T-bond with semi-annual payments, and a maturity date of December 2009 if the YTM is 5-percent. On January 1, 2002 the size and timing of cash flows are:
10. Level-Coupon Bonds: ExampleFind the present value (as of January 1, 2002), of a 6-3/8 coupon T-bond with semi-annual payments, and a maturity date of December 2009 if the YTM is 5-percent. PV= $31.875 [ 1- 1/ (1.025)16 ] + $1,000 = $1,089.75 .05/2 (1.025)16
11. 5.3 Bond ConceptsBond prices and market interest rates move in opposite directions. 2. When coupon rate = YTM, price = par value. When coupon rate > YTM, price > par value (premium bond) When coupon rate < YTM, price < par value (discount bond) A bond with longer maturity has higher relative (%) price change than one with shorter maturity when interest rate (YTM) changes. All other features are identical. 4. A lower coupon bond has a higher relative price change than a higher coupon bond when YTM changes. All other features are identical.
12. YTM and Bond Value8001000110012001300$140000.010.020.030.040.050.060.070.080.090.1Discount RateBond Value6 3/8When the YTM < coupon, the bond trades at a premium.When the YTM = coupon, the bond trades at par.When the YTM > coupon, the bond trades at a discount.
13. Maturity and Bond Price VolatilityCConsider two otherwise identical bonds. The long-maturity bond will have much more volatility with respect to changes in the discount rateDiscount RateBond ValueParShort Maturity BondLong Maturity Bond
14. Coupon Rate and Bond Price VolatilityConsider two otherwise identical bonds. The low-coupon bond will have much more volatility with respect to changes in the discount rateDiscount RateBond ValueHigh Coupon BondLow Coupon Bond
15. 5.4 The Present Value of Common StocksDividends versus Capital Gains Valuation of Different Types of Stocks Zero Growth Constant Growth Differential Growth
16. Case 1: Zero GrowthAssume that dividends will remain at the same level foreverSince future cash flows are constant, the value of a zero growth stock is the present value of a perpetuity:
17. Case 2: Constant GrowthSince future cash flows grow at a constant rate forever, the value of a constant growth stock is the present value of a growing perpetuity:Assume that dividends will grow at a constant rate, g, forever. i.e. ...
18. Case 3: Differential GrowthAssume that dividends will grow at different rates in the foreseeable future and then will grow at a constant rate thereafter. To value a Differential Growth Stock, we need to: Estimate future dividends in the foreseeable future. Estimate the future stock price when the stock becomes a Constant Growth Stock (case 2). Compute the total present value of the estimated future dividends and future stock price at the appropriate discount rate.
19. Case 3: Differential GrowthAssume that dividends will grow at rate g1 for N years and grow at rate g2 thereafter ......
20. Case 3: Differential Growth Dividends will grow at rate g1 for N years and grow at rate g2 thereafter …0 1 2 …N N+1 …
21. Case 3: Differential GrowthWe can value this as the sum of: an N-year annuity growing at rate g1plus the discounted value of a perpetuity growing at rate g2 that starts in year N+1
22. Case 3: Differential GrowthTo value a Differential Growth Stock, we can useOr we can cash flow it out.
23. A Differential Growth ExampleA common stock just paid a dividend of $2. The dividend is expected to grow at 8% for 3 years, then it will grow at 4% in perpetuity. What is the stock worth if the interest rate is 12%?
24. With the Formula
25. A Differential Growth Example (continued)…0 1 2 3 40 1 2 3 The constant growth phase beginning in year 4 can be valued as a growing perpetuity at time 3.
26. 5.5 Estimates of Parameters in the Dividend-Discount ModelThe value of a firm depends upon its growth rate, g, and its discount rate, r. Where does g come from? Where does r come from?
27. Formula for Firm’s Growth Rateg = Retention ratio × Return on retained earnings
28. Where does r come from?The discount rate can be broken into two parts. The dividend yield The growth rate (in dividends) In practice, there is a great deal of estimation error involved in estimating r.
29. 5.6 Growth OpportunitiesGrowth opportunities are opportunities to invest in positive NPV projects. The value of a firm can be conceptualized as the sum of the value of a firm that pays out 100-percent of its earnings as dividends and the net present value of the growth opportunities.
30. 5.7 The Dividend Growth Model and the NPVGO Model (Advanced)We have two ways to value a stock: The dividend discount model. The price of a share of stock can be calculated as the sum of its price as a cash cow plus the per-share value of its growth opportunities.
31. The Dividend Growth Model and the NPVGO Model Consider a firm that has EPS of $5 at the end of the first year, a dividend-payout ratio of 30%, a discount rate of 16-percent, and a return on retained earnings of 20-percent. The dividend at year one will be $5 × .30 = $1.50 per share. The retention ratio is .70 ( = 1 -.30) implying a growth rate in dividends of 14% = .70 × 20% From the dividend growth model, the price of a share is:
32. The NPVGO Model First, we must calculate the value of the firm as a cash cow. Second, we must calculate the value of the growth opportunities. Finally,
33. 5.8 Price Earnings RatioMany analysts frequently relate earnings per share to price. The price earnings ratio is a.k.a the multiple Calculated as current stock price divided by annual EPS The Wall Street Journal uses last 4 quarter’s earnings Firms whose shares are “in fashion” sell at high multiples. Growth stocks for example. Firms whose shares are out of favor sell at low multiples. Value stocks for example.
34. Other Price Ratio AnalysisMany analysts frequently relate earnings per share to variables other than price, e.g.: Price/Cash Flow Ratio cash flow = net income + depreciation = cash flow from operations or operating cash flow Price/Sales current stock price divided by annual sales per share Price/Book (a.k.a Market to Book Ratio) price divided by book value of equity, which is measured as assets - liabilities
35. 5.9 Stock Market ReportingGap has been as high as $52.75 in the last year.Gap has been as low as $19.06 in the last year.Gap pays a dividend of 9 cents/shareGiven the current price, the dividend yield is ½ %Given the current price, the PE ratio is 15 times earnings6,517,200 shares traded hands in the last day’s tradingGap ended trading at $19.25, down $1.75 from yesterday’s close
36. 5.9 Stock Market ReportingGap Incorporated is having a tough year, trading near their 52-week low. Imagine how you would feel if within the past year you had paid $52.75 for a share of Gap and now had a share worth $19.25! That 9-cent dividend wouldn’t go very far in making amends. Yesterday, Gap had another rough day in a rough year. Gap “opened the day down” beginning trading at $20.50, which was down from the previous close of $21.00 = $19.25 + $1.75 Looks like cargo pants aren’t the only things on sale at Gap.
37. 5.10 Summary and ConclusionsIn this chapter, we used the time value of money formulae from previous chapters to value bonds and stocks. The value of a zero-coupon bond is The value of a perpetuity is
38. 5.10 Summary and Conclusions (continued)The value of a coupon bond is the sum of the PV of the annuity of coupon payments plus the PV of the par value at maturity. The yield to maturity (YTM) of a bond is that single rate that discounts the payments on the bond to the purchase price.
39. 5.10 Summary and Conclusions (continued)A stock can be valued by discounting its dividends. There are three cases: Zero growth in dividends Constant growth in dividends Differential growth in dividends
40. 5.10 Summary and Conclusions (continued)The growth rate can be estimated as: g = Retention ratio × Return on retained earnings An alternative method of valuing a stock was presented, the NPVGO values a stock as the sum of its “cash cow” value plus the present value of growth opportunities.