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Slide 1: 

Concept of Value Book Value - Book value per share is determined as net worth divided by the number of shares outstanding. Book value reflects historical cost, rather than value. Replacement Value - Replacement value is the amount that a company would be required to spend if it were to replace its existing assets in the current condition.

Concept of Value: 

Concept of Value Liquidation Value - Liquidation value is the amount that a company could realise if it sold its assets, after having terminated its business. Going Concern Value - Going concern value is the amount that a company could realise if it sold its business as an operating business. Market Value - Market value of an asset or security is the current price at which the asset or the security is being sold or bought in the market.

Features of a Bond : 

Features of a Bond Long-term debt instrument or security. Can be secured or unsecured. Interest Rate or coupon rate is fixed Face Value or par value of Rs 100 or Rs 1,000, and interest is paid on face value. Maturity is fixed. Redemption value - may be redeemed at par or premium. Market Value- may be different from par value or redemption value as it is traded in the market.

Types of Bonds : 

Types of Bonds Bonds with maturity Pure discount bonds - The bond discount is the difference between the par value and the selling price. Perpetual bonds

Bond with Maturity: 

Bond with Maturity

Example: 

Example

Yield to Maturity: 

Yield to Maturity

Current Yield: 

Current Yield Current yield is the annual interest divided by the bond’s current value. Example: The annual interest is Rs 60 on the current investment of Rs 883.40. Therefore, the current rate of return or the current yield is: 60/883.40 = 6.8 per cent. Current yield does not account for the capital gain or loss .

Yield to Call : 

Yield to Call

Bond Value and Amortisation of Principal : 

Bond Value and Amortisation of Principal

Example: 

Example Suppose the government is proposing to sell a 5-year bond of Rs 1,000 at 8 per cent rate of interest per annum. The bond amount will be amortised (repaid) equally over its life. If an investor has a minimum required rate of return of 7 per cent, what is the bond’s present value for him?

Example: 

Example

Bond Values and Semi-annual Interest Payments: 

Bond Values and Semi-annual Interest Payments

Example: 

Example

Bond Values and Changes in Interest Rates: 

Bond Values and Changes in Interest Rates The value of the bond declines as the market interest rate (discount rate) increases . The value of a 10-year, 12 per cent Rs 1,000 bond for the market interest rates ranging from 0 per cent to 30 per cent is shown in the figure .

Valuation of Shares: 

Valuation of Shares A company may issue two types of shares: ordinary shares and preference shares Features of Preference and Ordinary Shares Claims Dividend Redemption Conversion

Valuation of Preference Shares: 

Valuation of Preference Shares

Value of a Preference Share-Example : 

Value of a Preference Share-Example

Valuation of Ordinary Shares: 

Valuation of Ordinary Shares The valuation of ordinary or equity shares is relatively more difficult. The rate of dividend on equity shares is not known; also, the payment of equity dividend is discretionary . The earnings and dividends on equity shares are generally expected to grow, unlike the interest on bonds and preference dividend.

Dividend Capitalisation: 

Dividend Capitalisation

Example- Single Period Valuation: 

Example- Single Period Valuation

Multi-period Valuation: 

Multi-period Valuation

Multi-period Valuation: 

Multi-period Valuation

Example: 

Example

Present value of dividends and future share price: 

Present value of dividends and future share price