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M4 Assignment 1 Discussion Question
Valuation of a firm’s financial assets is said to be based on what is expected in the future, in terms of the future performance of the firm, the industry, and the economy. What types of value would you consider when assigning “value” to a firm’s stock or bond? What is the significance of each of the different types of value in the valuation process? Use examples to support your response.
By the due date assigned, respond to the discussion question. Submit your response to the Discussion Area. Start reviewing and responding to your classmates as early in the module as possible.
Grading Criteria
Maximum Points
Quality of initial posting, including fulfillment of assignment instructions 16
Quality of responses to classmates 12
Frequency of responses to classmates 4
Reference to supporting readings and other materials 4
Language and grammar 4
Total: 40
M4Assignment 1 Discussion
Leona Ku posted Jan 27, 2018 5:29 PM
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To consider “value” to the firm’s bonds is to understand bonds itself is different from stocks. The major difference is bond are loans. When purchasing bonds, you are making a loan to the company. What’s important to look at for bonds is the trade worth based on the premium or discount. Looking at the interest paid on the bond and what’s the current value versus face value is important to know. If the current value is more than the face value which is the cost of buying the bond, you would earn more, and it’s considered a premium. Discount bonds are the opposite is when you earn less from selling the bond. The current interest rate can greatly affect your firm’s value of bonds, because if the interest rate were to increase then it lowers your bond’s interest rate value. The age of the bond and the demand for it makes a difference in pricing as well. It’s closely related to the strength of the company, because if the company is not financially stable this could lower the value of the bond. Lastly, another “value” to consider is the credit worthiness of the bond. If the bonds have low ratings, then it’s likely the value of the bonds would decrease dramatically.
All above information is important to factor in with the firm’s bond. Although there is many “values” to valuing the firm’s bonds, the main thing is to be aware and study the market. By doing research and keeping an eye out, this can help make the best out of the firm’s bonds.
References:
https://www.investopedia.com/ask/answers/112614/what-determines-price-bond-open-market.asp
https://www.investopedia.com/articles/investing/110915/3-signs-its-time-sell-your-bonds.asp
M4-A1
Victoria Villalpando posted Jan 27, 2018 2:39 PM
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Valuation of a firm’s financial assets is said to be based on what is expected in the future, in terms of the future performance of the firm, the industry, and the economy. What types of value would you consider when assigning “value” to a firm’s stock or bond? What is the significance of each of the different types of value in the valuation process? Use examples to support your response.
When considering different types of value to assign to a firm’s stock or bond, it is very important to consider and evaluate the credit risk. Credit risk is the probability of a company paying back their debt. There are many agencies that will grade companies on their credit risk. Something else to consider is the longevity of the company. Is the company new or has it been around for a period of time? Does the company seem like it has staying power? Those are some things to additionally consider.
The significance of each of the different types of value in the valuation process is to compare one’s stock to other stocks. This is where you find out what the business is worth. Through the valuation process, you will find out the fair market value of the business. By knowing the fair market value, it will allow the business to proceed in the direction that is best suited for this specific company and help to invest money more wisely.
