Valuation of Securities

UNIT II

Introduction

In this chapter we will learn how to value securities

Securities include bonds, debentures, preference shares & equity

shares

Bonds, debentures & preference shares are called fixed income

securities

Equity shares are called variable income securities

Analysts uses various methods for valuation of securities to

determine if the market price of the securities is over priced or under
priced

Fixed Income Securities Bonds /

Debentures

Bond/ Debenture contains a promise to pay the stated rate of

interest for the defined rate & then repay the principal at the
maturity

They are classified as fixed income securities

They are the lenders to the company

Bond / Debentures are senior securities of the company

Benefits of Issuing Bonds

Reduce the Cost of Capital

Benefits our of financial leverage

Effects tax saving

Widen the source of funds

Preserves control

Types of Bonds / Debentures

Convertible & Non-Convertible

Sinking fund Bond

Serial Bonds Spreads repayment systematically

Mortgage or Secured Bonds

Collateral Bonds

Guaranteed Bonds

Redeemable & Irredeemable Bonds

Participating Bonds Guaranteed rate of plus participation in earning

upto an additional specified percentage

Bond Pricing

Current Yield

Yield to Maturity