Traditional approach to valuation, Financial Management

Assignment Help:

Under this approach of Valuation, all cash flows are discounted using single interest rate (discount rate).  For example: Consider the 5-year (7.00 percent) Treasury Security (maturing in 2010). Under this approach, all cash flows of this bond will be discounted by the same discount rate to calculate the present value of the cash flow. The discount rate used is the yield for the on-the-run issue obtained from the Treasury yield curve. For example, assume that yield for 7-year Treasury bill is 9%. Then, the practice is to discount each cash flow of each bond using a discount rate of 9%.

In the case of non-Treasury securities, a premium or yield is added to the on-the-run Treasury yield. For example, assume that non-treasury securities the appropriate yield spread is 175 basis points. In such a case, all cash flows will be discounted at the yield for the on-the-run 7-year Treasury bill issue of 9% plus 175 basis points.

On-the-Run Issue is the most recent issue of a security. As an issue ages its liquidity decreases and the spread tends to widen.


Related Discussions:- Traditional approach to valuation

Describe the main elements of working capital management, Question: (a)...

Question: (a) Describe the main elements of Working capital management? (b) Belle Rive Ltd Belle Rive Ltd has an annual turnover of Rs 60 million of which 80% is on cr

George thomas, which type of financing is appropriate to each firm

which type of financing is appropriate to each firm

Defects in the companys system, The case of McKesson & Robbins scandal (193...

The case of McKesson & Robbins scandal (1938) was happen due to internal fraud. This case is also happen by the faulty work of board of directors. The organization of McKesson & Ro

Explain about modern approach of financial management, Q. Explain about Mod...

Q. Explain about Modern Approach of financial management? The modern approach considers the term financial management in a broad sense. According to this approach the finance f

Investing surplus cash, Investing Surplus Cash : Cash not required for temp...

Investing Surplus Cash : Cash not required for temporary periods of short durations can be invested in near-cash assets, i.e. marketable securities which are readily convertible in

Dividend policy, DIVIDEND POLICY Dividends provide the portion of a fi...

DIVIDEND POLICY Dividends provide the portion of a firm's net earnings which are paid out to the shareholders. the objective of financial management of maximizing the share

OPERATING CYCLE, DISSCUSS THE APPLICABILITY OF AN OPERATING CYCLE IN A VEGE...

DISSCUSS THE APPLICABILITY OF AN OPERATING CYCLE IN A VEGETABLE GROWING BUSINESS IN UGANDA?

Interlinkage in the financial markets, Interlinkage in the Financial Market...

Interlinkage in the Financial Markets - Common Features The interlinkage present in the financial markets is essentially due to the fact that all these markets are in the proce

I need urgent help in Financial Managment, How to get cost differential whe...

How to get cost differential when 100% done by a single party only.

Value of conversion benefits, Having seen the measure used for ...

Having seen the measure used for analyzing the convertible bonds, let us now examine the merits and demerits of convertible bonds, and why or wh

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd