How are the values for perpetual bonds and preference shares determined?

Answer 1

1. VALUATION OF BONDS & SHARES
2. Principle underlying valuation:
   • Value of any asset is the discounted value of the future steams of benefit expected from the asset.
3. Introduction
   • A ssets can be real or financial; securities like shares and bonds are called financial assets while physical assets like plant and machinery are called real assets .
   • The concepts of return and risk, as the determinants of value, are as fundamental and valid to the valuation of securities as to that of physical assets.

Answer 2

The value of perpetual bonds is calculated using the formula V = C / r, where V is value, C is the coupon payment, and r is the discount rate. Preference shares are valued based on their fixed dividend payments and their risk compared to other investments in the market. Factors such as interest rates, company performance, and dividend yield expectations influence the determination of values for both perpetual bonds and preference shares.