公司理财讲义（3）--巫和懋

CorporateFinance3-0©ProfessorHo-MouWuBondMarketandAlternativeInvestmentRules3.1ValuationofBonds3.2TheTermStructureofInterestRates3.3AlternativeInvestmentRules(1)ThePaybackPeriodRule(2)TheAverageAccountingReturn(3)TheInternalRateofReturn(4)TheProfitabilityIndex3.4WhyUseNetPresentValue?(RWJCh.5,6)3-1©ProfessorHo-MouWuCorporateFinance3.1ValuationofBondsExample1：Supposeweobservethefollowingbondpricesfordefault-freezerocouponbonds(purediscountbond,withfacevalue$1,000)：Howarethebondpricesrelatedwithinterestrates?1yearzero:Price=9262yearzero:Price=8423yearzero:Price=7584yearzero:Price=6831yearbond2yearbond3yearbond4yearbondy1y2y3y4i1i2?i4?i3?(maturitydate)3-2©ProfessorHo-MouWuCorporateFinanceThePresentValueFormulasforBondsPureDiscountBondsLevelCouponBondsConsolsforT-maturitybondswithfacevalueF.TTyFyCyCyC1111PVP2B,1PVPBTTyFSucharateyisknownastheyieldtomaturity(YTM).Theyieldtomaturityisacomplicatedaverageofdifferentratesofinterest.Itcanbeausefulsummarymeasure.yCPVPB‥‥‥‥‥‥‥‥‥‥(3.1)‥‥(3.2)‥‥‥‥‥‥‥‥‥‥‥‥(3.3)3-3©ProfessorHo-MouWuCorporateFinanceYieldtoMaturityExample1.(continued):wecanconvertbondpricesinto“yieldtomaturity”()hence,yn=yieldofbondswithnperiodsastimetomaturity,alsocalled“spotrates.”Plotynagainsttimetomaturity(n)”yieldcurve”tosummarizeinformationaboutbondprices(diagram1).ny)1(10009261y22)1(1000842y33)1(1000758y44)1(1000683y)(%8111yiy%92y%66.93y%104y3-4©ProfessorHo-MouWuCorporateFinance3.2TheTermStructureofInterestRatesFrombondprices,wecancomputeyields,plotthe“yieldcurve”,andcomputetheimpliedforwardrates,.nynfYieldCurveMaturity%1086422134implied“forwardrates”yieldcurveor“spotrates”3-5©ProfessorHo-MouWuCorporateFinanceForwardRatesisthe“break-even”interestratethatequatesthereturnsonan-periodbondtothatofa(n–1)periodbondrolledoverintoaone-yearbondinyearn.Forexample,,(geometricmean)or,soasanapproximation(arithmeticmean).Similarly,nf.111,111,11144433333222221yfyyfyyfy1.1)08.1()09.1(122f%102f%102f21221fyy.%11so),(3133213fffyy.%11so),(31443214ffffyy3-6©ProfessorHo-MouWuCorporateFinanceForecastofFutureInterestCanweuseforwardratesfntoforecastfutureshort-terminterestratesin,alsocalled“shortrates”？Assumethattheinvestmenthorizonisoneyear,andinvestorsareriskneutral.Example2:Considertwoinvestmentalternatives：(A)buy1-yearzero-couponbond(safe,norisk).(B)buy2-yearzero-couponbondandsellitattheendof1styear(risky,subjecttopriceriskattheendof1styear.)842?10009261000(A)(B)i2=?)1(10002iPB3-7©ProfessorHo-MouWuCorporateFinancePureExpectationHypothesisExpectedreturnof(A)Expectedreturnof(B)Assumethatinvestorsarerisk-neutral.Thesetwoexpectedreturnsshouldbethesame(donotworryaboutdifferentrisksinvolvedin(A)and(B))：andweknowSo,henceTheforwardratesaremarketexpectationsoffutureshort-terminterestrates.ThisiscalledthePureExpectationsHypothesis：…….……...…….……..(3.4)1111or119261000iyyEE222222i11111842110002EyiyEiE22211111iEyy2122111fyy221111iEf)(2or11222iEfiEfninniEf3-8©ProfessorHo-MouWuCorporateFinanceLiquidityPreferenceHypothesisAssumeinvestorsareRiskaverse.Stillwithone-yearinvestmenthorizon(preferencefor“liquidity”).Since(B)isriskier,(B)shouldhavehigherexpectedreturntoattractinvestors：.Hence.TheLiquidityPreferenceHypothesis:+riskpremium=f2.Ingeneral,fn-riskpremium=.…………………….……..(3.5))1(11)1(1222yiEy)(21111222iEfiEf2iEniE3-9©ProfessorHo-MouWuCorporateFinance3.3AlternativeInvestmentRules•Howlongdoesittaketheprojectto“payback”itsinitialinvestment?•PaybackPeriod=numberofyearstorecoverinitialcosts•MinimumAcceptanceCriteria:–setbymanagement•RankingCriteria:–setbymanagement(1)ThePaybackPeriodRule3-10©ProfessorHo-MouWuCorporateFinance(1)ThePaybackPeriodRule(continued)•Disadvantages:–Ignoresthetimevalueofmoney–Ignorescashflowsafterthepaybackperiod–Biasedagainstlong-termprojects–Requiresanarbitraryacceptancecriteria–AprojectacceptedbasedonthepaybackcriteriamaynothaveapositiveNPV•Advantages:–Easytounderstand–Biasedtowardliquidity3-11©ProfessorHo-MouWuCorporateFinanceTheDiscountedPaybackPeriodRule•Howlongdoesittaketheprojectto“payback”itsinitialinvestmenttakingthetimevalueofmoneyintoaccount?•Bythetimeyouhavediscountedthecashflows,youmightaswellcalculatetheNPV.3-12©ProfessorHo-MouWuCorporateFinance(2)TheAverageAccountingReturnRule•Anotherattractivebutfatallyflawedapproach.•RankingCriteriaandMinimumAcceptanceCriteriasetbymanagement•Disadvantages:–Ignoresthetimevalueofmoney–Usesanarbitrarybenchmarkcutoffrate–Basedonbookvalues,notcashflowsandmarketvalues•Advantages:–Theaccountinginformationisusuallyavailable–Easytocalculate3-13©ProfessorHo-MouWuCorporateFinance(3)TheInternalRateofReturn(IRR)Rule•IRR:thediscountthatsetsNPVtozero•MinimumAcceptanceCriteria:–AcceptiftheIRRexceedstherequiredreturn.•RankingCriteria:–SelectalternativewiththehighestIRR•Reinvestmentassumption:–Allfuturecashflowsassumedre