CORPORATE

FINANCE
Quynh Trang Phan
 2

CHAPTER 5
BOND
VALUATION
AND STOCK
VALUATION
OUTLINE
Bond valuation
Stock valuation
BONDS

Face/par value
Coupon/coupon rate
Maturity
Yield to matutiry (YTM)
 5

CASH FLOW
BOND VALUE
6
INTEREST RATE RISK

Time to maturity
Coupon rate
SHORT-TERM DEBT

Bills
Unfunded debts
LONG-TERM DEBT

Notes
Debentures
bonds
BOND RATING
OTHERS

Government bond
Zero coupon bond
Floating-rate bond
Sukuk
TERM STRUCTURE

Inflation premium
Interest rate risk premium
TERM STRUCTURE 13
TERM STRUCTURE 14
STOCK

Comment stock
Preferred stock
COMMENT STOCK VALUATION

Current price
BONDS
INDIVIDUAL SECURITIES

Expected return E[R]=∑ X i ×Ri

Variance

Standard deviation
PORTFOLIO (TWO ASSETS)

Expected return E [R P ]=∑ X i ×

Variance ++

Standard deviation σ P = √
PORTFOLIO (TWO ASSETS)

Covariance

Correlation
DIVERSIFICATION

Weighted average of SD
X A × σ A + X B × σB

Portfolio SD
+ +
DIVERSIFICATION

Weighted average of SD
X A ×σ A +X B × σB

Portfolio SD
+ +

σ P =√ σ 2
P
DIVERSIFICATION

Return on stock
MARKET RISK
CAPM
BALANCE SHEET 26