Management and Organizational Studies 3311A/B Lecture Notes - Lecture 2: Zero-Coupon Bond, Stock Valuation, Discount Window

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3311A/B
• Professor: Jun Wang

Document Summary

Topic 2: valuation of stocks and bonds (chapter 6, 15, 20, 21) Bond- certificate showing that a borrower owes a specified sum: in order to repay the money, the borrower has agreed to make interest and principal payments on designated dates. Maturity date- the date when the issuer of the bond makes the last payment: said to mature or expire on the date of its final payment. Value of an investment: pv at a discount rate- represents market returns, discount a future cash flow to determine pv, applicable to both financial securities and physical assets. Coupon rate- rate at which an investor receives a fixed cash flow every 6 months. To value bonds and stocks, we need to: estimate future cash flows: magnitude and timing. Discount future cash flows at an appropriate rate: the rate should be appropriate to the risk presented by the security, discount rate determined by risk.