Session 7: Valuing Bonds
ฝัง
- เผยแพร่เมื่อ 12 มิ.ย. 2024
- In this session, I present the structure for valuing assets with contractually set claims (like bonds) and how default risk affects that value.
Slides: www.stern.nyu.edu/~adamodar/pd...
Post class test: www.stern.nyu.edu/~adamodar/pd...
Post class test solution: www.stern.nyu.edu/~adamodar/pd...
It is interesting that despite professor's excellent explanation, both viewers and comments are keep dropping from session 1-session 7. For those who watch this video, you are halfway done. Don't give up and keep going!
Thank you for these short and crisp lectures. I feel that taking this short course before the corporate finance course will be beneficial.
0:00 start
0:10 Valuing a Contractual Claim
02:20 Example
04:23 What-Ifs
04:45 Yield to Maturity in a Bond
05:34 Yield
10:02 How Bond Pricing Works
10:34 Measures of Default Risk
11:18 Default Spread
12:32 Value a Bond with Default Rates
14:44 Floating Rate Bond
Great explanation! Thank you.
Thank you so much! Your content is welly appreciated.
great presentation Prof sir
Thanks Professor finally understood the real impact of Bond rate changes to the stock market. Amazing to know such a small difference in Bond rates have a huge impact on the yields.
At what part sir has explained this??
@@yashjain8257 Go to time stamp 6.46 where Professor explains a small correction in interest like 1% increases the bond value by 9%
@@shashigurufocus1880 but how this is related to share market??
@@yashjain8257 When Bond Value can return 9% for the long term with very little risk there will be a tendency for people to sell off shares and move into Bonds and in that process share prices of stocks may go down by alot. I'm not an expert in this but that's what I understood.
Thank you very much Sir.
Thank you for all your Videos and even your university classes.
If you use equations like here, i would really help if you would say what all the cryptic letters mean.
I have no idea would to use for PV(A,10,2%).
I guess PV for present value and i guess (A,10,2%) stands for annuity 10 years, 2%.
I have never seen a equation with ( , , )
But what number would that be in our case and how is it calculated? It most be 8.98...., but why?
I think there is something wrong with either the numbers or his equation ive tried to use an Present Value Calculator on the internet and it still doenst add up.
@@NB-mn8zt I believe the annuity is the $30 of coupons. The notation is bad. Say for the example:
Price of Bond = $30 * PV(A, 10, 2%) + $1000/(1.02)^10 = $1089.83
= $30/0.02 * (1 - 1/(1.02)^10) + $1000/(1.02)^10 = $1089.83
I think its the coupons adjusted for current market interest rate + discounted face value = Price of Bond
(Based on the formula PV($A, t, r%) = A / r * [1 - 1/(1 + r)^t]
Thanks, @@ericpons8709 for the explanation, this was ambiguous part of video.
@@ericpons8709 What if you want to use the semi annual 15 per 6 months? I think he said that changes the formula a bit
@@ericpons8709 Thanks so much for the clarification! Doing this in 2024...
Its a bit misleading to write 30 * PV(A,10,r) because PV(A,10,r) is the present value of the coupon annuity and therefore the 30 (Which is the interest bond holders get paid) is already in PV(A,10,r) as A=30. Its the annuity. So in your equation A is double which would deliver wrong results. Hope this helps someon.
thanks for the great lectures doc
Thank you for raising this point which is very important, and I agree with what you highlighted. I do find Prof. Aswath's expression of formula rather lengthy (from session 6 onwards) when the same formula can be expressed simplistically. Anyway that does not discount the fact that Prof Aswath has done a great job in explaining the concepts. Doing this in 2024....
Damodaran is a legend
has anyone done the calculations calculating YTM in his example? If you have please post it here thanks!
I used the goalseek function in excel to solve for the rate. I created one column for year, one column for coupon($30) and a third column for PV of that specific years cash flow - ($30 coupon/(1+r)^y; where r points to an empty cell using an absolute reference which will later contain our discount rate and y points to the cell with our year. I then calculated the Sum of PV of the cash flows for the ten years of coupons. Separately I calculated the PV of the $1000. I then summed my two PV amounts. Finally I used goalseek, set cell summing two PV payments to bond price of $1043.76, by changing the cell containing our discount rate; which is blank. The function then sets discount rate to 2.5% which is the solution we're looking for. I can share a spreadsheet if my typed explanation isn't clear.
@@briansanchez8302 yes Brian can you do it actually i found it little confusing and tough
@@supromoyroy1153 Try using these in excel
A1 = rate% (leave it blank or you could insert stg if you want to since goal seek will change this anyway)
B1 = 10 (years to maturity)
C1= 1000 (Face value)
D1 = 3%
E1 = C1*D1
F1 = -PV(A1,B1,E1,C1,0) (make sure to add the "-" before PV)
Now go to data --> what if -> goal seek, set cell -> F1, to value 1043.76, changing the cell -> A1. Now, make sure you have decimals enabled on cell A1, and the rate would change to 2.5%. You could either enter 2% on A1 to get PV of 1089 or you could use goal seek to change stuff.
this session is NOT totally understandable! ah.