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The Essentials of Financial Analysis by Samuel Weaver

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CHAPTER EIGHTINTEREST RATES AND VALUATION OF FINANCIAL SECURITIES

This chapter continues to build on the time value of money (TVM) tools developed in Chapter 7 while also providing additional applications centered on valuing bonds (an annuity with a lump-sum maturity) and equity (a perpetuity). Before reaching valuation, additional foundation is offered to better understand the financial system as well as how interest rates (rates of return) are determined.

Within the discussion of fixed-income security valuation (bonds), I will review a loan amortization table and the bond rating process. Within the discussion of the valuation of equity, groundwork is laid for the chapter on the cost of capital (Chapter 11), as well as the strategic valuation ...

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