The interest rates of bonds keep changing in the market and this exposes investors to a risk known as interest rate risks. The interest rate risk is the risk arising due to the fluctuation of interest rates. It is pretty common in the markets and investors to keep a close eye on these types of risks to calculate the value of their portfolio including bonds and equity shares.Bonds with longer maturity have a higher risk than a bond of shorter maturity. For example, in a case of a bond that gives 10% back annually for a par value of INR ... Read More

A perpetual bond is a never-ending bond. They also don't have a maturity value. these bonds just pay the interests in the form of coupons for an indefinite period. Since the interest is paid for theoretically forever, the bond is named perpetual meaning forever.ConsiderationsA perpetual bond is an obligation. It is an obligation only in name because the issuer doesn't have to pay the lump sum and only interests are paid forever.Sometimes, perpetual bonds are preferred instead of dividend stocks. However, the similarities between the two are extremely limited.Dividend interests are not mandatory to be paid. That is in the ... Read More

There are basically three types of bonds in the market −Bonds with maturityPurely discount bondsPerpetual bonds.In this article, we will see how the bonds with maturity are valued. Bonds with maturity have a maturity date on which the bond's value with the interest payment is returned to the investor.Note − There are three types of bonds depending on their characteristics, but the bond with a maturity is the most common among them.Bonds with MaturityGovernments usually offer bonds that have a given interest rate and a maturity period. The net present value of a bond is its period of cash flows ... Read More

Expectation TheoryThe upward sloping curve or the inverted curve is supported by the Expectation Theory. It states that since investors want the maximum return from their short-term investments, the rate of the short term should increase in the future. Then, we must assume that long-term rates are higher than short-term ones. However, in present value terms, the return from long-term security is equal to the series of short-term securities.Since future values from investments are the same as that of long-term returns, investors will be indifferent in choosing between them. The Expectation Theory assumes that if Capital Markets are efficient, there ... Read More

As we know, there are generally two types of shares − general shares and preference shares. They also have certain differences and some similarities. While the preference shares have some distinct characteristics, it is easy to sort the differences between them.The following features are available with preference shareholding.Preference in ClaimsPreference shareholders have the preference in claims on the assets of a company prior to equity shareholders. The equity shareholders are the owners of the company. Therefore, the preference shareholders have an upper hand while making a claim on the company's dividends and assets before the owners who are ready to ... Read More

Book ValueIn finance, assets are considered at their historical cost rather than present value. Therefore, the price gets depreciated over the years. Sometimes, book value represents net cost minus the amortized value. The book value of debt is represented at its outstanding amount.The difference between book values of assets and liabilities is always equal to net worth or shareholders' funds. Net worth divided by the number of shares gives the value of book value per share. The book value considers cost rather than value. By value, it means the worth of an asset today in terms of its potential advantages ... Read More

Valuation is the process of finding the present value of a business. It can be done in many ways but some factors are needed for valuation, such as the probable future earnings, management structure of the business, the market capitalization of the company’s assets, and its capital budgeting structure composition.Valuation is also done to find out the fair value of a security which a buyer will pay the seller. Intrinsic valuation tells the analysts the investors in the share market whether a stock is under or overvalued and depending on this the future value of the stock is determined.Note − ... Read More

Calculation of the future value of a lump sum may be necessary for many reasons. The investors or lenders may want to know how much they will get for their lump-sum investment after a specific period of time. Knowing the future value is important for the borrower is important too because he or she has to pay the total amount of lump-sum plus any interest on them.Future Value of a Lump-sum AmountWe know that, Future Sum = Principal + Interest Rate on PrincipalSo, for the first year, F1 = P + P x i = P (1+i)F2 = F1 + ... Read More

The procedures and systems used by a firm can be cumulatively termed as financial business processes. These processes may include a simple task as entering a financial entry into the account statement on one hand while, on the other hand, it may also contain complex and hard work to predict the future modes of business.For a company to survive and grow, it must engage in lots of businesses processes at the same time. Therefore, it is implied that the financial managers are equipped with knowledge in subjects they specialize in to rectify complex errors that might creep into the process ... Read More

We can start calculating multi-period compounding right from calculating effective interest rate (EIR).The effective interest rate is given by, EIR = {1+i/m}nxm - 1  ------------------ (1)Where, i is the nominal interest rate, n is the number of years, m is the number of compounding per year.Using equation 1, we get, Fn = A { (1+i/m)nxm - 1} / i/m  ...............................(2)Equation 2 helps us to use the present value of an annuity in the case of a multi-period compounding. Here the discount rate will be i/m and the time horizon is (n × m).Let us consider an example of investment of ... Read More