Valuation of Bond or Debenture. It is relatively easy to determine the intrinsic value of a bond or a debenture. If there is no risk of default, there is no difficulty in estimating the cash flows associated with a bond. The expected cash flows consist of the annual interest payments plus the principal amount to be recovered at maturity or sooner. The appropriate … [Read more...] about Valuation of Bond or Debenture
Financial Market
Price-Earning Ratio Approach
Price-Earning Ratio Approach. The ratio is the ratio of price per share to earning per share is commonly known as the price-earning ratio. Much of the real world discussion of stock market valuation concentrates on the firm’s price-earning multiple. Earning a multiplier approach states that the price of the stock is equal to the product of its earnings and a multiplier. It … [Read more...] about Price-Earning Ratio Approach
Relationship between the stock price and its determinants
Relationship between the stock price and its determinants The relationship between the stock price and its determinants are summarized below: The notion of the determinants Impact on stock price Interest rates rise (fall). Stock prices fall (rise). An increase (decrease) in expected corporate earnings. Stock prices tend to increase (decrease). A change in government … [Read more...] about Relationship between the stock price and its determinants
Discuss on Bond Duration and Bond Volatility with Example
Discuss on Bond Duration and Bond Volatility with Example. A bond will face interest rate risk if the holding period differs from duration. For any bond, there is a holding period at which the effect of reinvestment risk and price risk balances each other. The lose of reinvestment of interest can be compensated by a capital gain on the sale of the bond and vice versa. For this … [Read more...] about Discuss on Bond Duration and Bond Volatility with Example
What are the risks of investing in a bond?
What are the risks of investing in a bond? As compared to other financial assets or securities fixed income securities are considered to be less risky. Though they are less risky, they are not entirely risk-free securities. Therefore, the investment in bonds is a function of various types and sources of risk. The actual return from a bond may differ from the expected return … [Read more...] about What are the risks of investing in a bond?
Derivatives Markets – The Development and Creative Application of Financial Techniques
Derivatives Markets - Financial engineering can be defined as the development and creative application of financial techniques for solving financial problems, exploiting investment opportunities, and to add value. Derivatives Markets Financial transactions and investment activities particularly insecurities as well as involve uncertainty. Fluctuations in the financial assets … [Read more...] about Derivatives Markets – The Development and Creative Application of Financial Techniques
Factors Determining Stock Price
Factors Determining Stock Price: Literature hypothesizes that the fluctuations in earnings are much more pronounced than the fluctuations in dividends. A downturn in earnings is not followed by a downturn in dividends unless the downturn in earnings persists for a long period. As result management knows that the market reacts negatively to dividend downturns, hence they are … [Read more...] about Factors Determining Stock Price
Bond Markets
Bond Markets. Understanding of fixed income securities. Fixed income securities are the investment alternatives generating predetermined fixed income to the investors. Bonds and debentures offer the investors the opportunity to earn stable nominal returns with low risk of loss of principal if held to maturity. Nevertheless, bonds also offer investors the chance to earn more … [Read more...] about Bond Markets
Common Stock Valuation through Capitalization Technique
Common Stock Valuation through Capitalization Technique. A capitalization technique is merely a method of converting future cash returns into a single present or intrinsic value for security. Common stock offers the potential for growth of future cash flows, and this must be reflected in the intrinsic value analysis. Common Stock Valuation through Capitalization … [Read more...] about Common Stock Valuation through Capitalization Technique
Bond Pricing Theorems
Bond Pricing Theorems. Being fixed income securities bonds are issued with a fixed rate of interest known as the coupon rate. The calculation of coupon rate is based on the face value and maturity of the bond. Bond Pricing Theorems At the time of issuance, the coupon rate seems to be equal to the prevailing market interest rate. Based on the market condition, the interest … [Read more...] about Bond Pricing Theorems