Expectation: The basic

tools.

Sumber:
 Nominal versus Real Interest Rates

▪ Interest Rates expressed in terms of dollars (or, more generally, in units

of the national currency) are called nominal interest rates.
▪ Interest rates expressed in terms of a basket of goods are called real
interest rates.
 Figure 14 - 1
Definition and Derivation
of the Real Interest Rate
it = nominal interest rate for
year t.
rt = real interest rate for year t.
(1+ it): Lending one dollar this
year yields (1+ it) dollars next
year. Alternatively, borrowing
one dollar this year implies
paying back (1+ it) dollars next
year.
Pt = price this year.
Pet+1= expected price next
year.
 Pt
Given 1 + rt = (1 + it ) e , and knowing that Pt = 1
P t +1 P e t +1 (1 +  e t )
( P e t +1 − Pt )
●then, the expected rate of inflation equals  e t +1 
1 + it Pt
Consequently, (1 + rt ) =
1 +  et + 1
If the nominal interest rate and the expected rate of inflation are not too large, a simpler
expression is:

rt  it −  e t + 1
The real interest rate is (approximately) equal to the nominal interest rate minus the expected rate of inflation.
 rt  it −  e t + 1
●Here are some of the implications of the relation above:

○ If  e t = 0  it = rt

○ If
 e t  0  it  rt

○ if it    e t →  rt
 Expected Present Discounted Values Interest Rates
The expected present discounted value of a sequence of future payments is the
value today of this expected sequence of payments.

Computing Expected Present Discounted Values

Figure 14 - 7
Computing Present
Discounted Values
● (a) One dollar this year is (c) One dollar is worth (1 + it )(1 + it +1 )
worth 1+it dollars next year. dollars two years from now.

(b) If you lend/borrow 1/(1+it) (d) The present discounted value of

dollars this year, you will a dollar two years from today is
receive/repay 1 equal to 1 .
(1 + it ) = 1
(1 + it (1 + it )(1 + it +1 )
dollar next year.
The word “discounted” comes from the fact that the
value next year is discounted, with (1+it) being the
discount factor. The 1-year nominal interest rate, it, is
sometimes called the discount rate.
The General Formula
●The present discounted value of a sequence of payments,
or value in today’s dollars equals:
1 1
$Vt = $ zt + $ zt +1 + $ zt + 2 +   
(1 + it ) (1 + it )(1 + it +1 )

When future payments or interest rates are uncertain, then:

1 1
$Vt = $ zt + $ z t +1 +
e
$ z e
t+2 +   
(1 + it ) (1 + it )(1 + i t +1 )
e

Present discounted value, or present value are another way

of saying “”expected present discounted value.”
Using Present Values: Examples

●This formula has these implications:

○ Present value depends positively on today’s

actual payment and expected future payments.

○ Present value depends negatively on current

and expected future interest rates.
Constant Interest Rates
●To focus on the effects of the sequence of payments on the
present value, assume that interest rates are expected to be
constant over time, then:
1 1
$Vt = $zt + $ z t +1 +
e
$ z e
t +2 +   
(1 + i ) (1 + i ) 2

Constant Interest Rates and Payments

When the sequence of payments is equal—called them $z, the
present value formula simplifies to:
 1 1 
$Vt = $ z 1 + +  + n −1 
 (1 + i ) (1 + i ) 
Constant Interest Rates and Payments

The terms in the expression in brackets

represent a geometric series. Computing the
sum of the series, we get:

1 − [1 / (1 + i ) n ]
$Vt = $z
1 − [1 / (1 + i )]
Constant Interest Rates and Payments, Forever
●Assuming that payments start next year and go on forever,
then:
1 1 1  1 
$Vt = $z + 2 $z +    =  1+ +    $z
(1 + i ) (1 + i ) (1 + i )  (1 + i ) 

Using the property of geometric sums, the present value

formula above is:
1 1
$Vt = $z
(1 + i ) 1 − (1/(1 + i))
$z
Which simplifies to: $Vt =
i
Zero Interest Rates

If i = 0, then 1/(1+i) equals one, and so does

(1/(1+i)n) for any power n. For that reason, the
present discounted value of a sequence of
expected payments is just the sum of those
expected payments.
Nominal versus Real Interest Rates and Present Values
1 1
$Vt = $ zt + $ z t +1 +
e
$ z e
t+2 +   
(1 + it ) (1 + it )(1 + i t +1 )
e

●Replacing nominal interest with real interest rates to

obtain the present value of a sequence of real payments,
we get:
1 1
Vt = zt + z t +1 +
e
z e
t+2 +   
(1 + rt ) (1 + rt )(1 + r t +1 )
e

$Vt
Which can be simplified to:
= Vt
Pt
Financial market and
expectation

Sumber:
●Bonds differ in two basic dimensions:

○ Default risk, the risk that the issuer of the bond will not pay back the
full amount promised by the bond.

○ Maturity, the length of time over which the bond promises to make
payments to the holder of the bond.

●Bonds of different maturities each have a price and an associated interest

rate called the yield to maturity, or simply the yield.
 The relation between maturity and yield is called the yield curve, or the
term structure of interest rates.

Figure 15 - 1
U.S.Yield Curves:
November 1, 2000,
and June 1, 2001
The yield curve, which was
slightly downward sloping in
November 2000, was sharply
upward sloping seven months
later.
Bond Prices as Present Values

●Consider two types of bonds:

○ A one-year bond—a bond that promises one payment

of $100 in one year. Price of the one-year bond:

$100 $100
$ P1t = $ P2 t =
1 + i1t (1 + i1t )(1 + i e 1t +1 )

○ A two-year bond—a bond that promises one payment

of $100 in two years. Price of the two-year bond:
Arbitrage and Bond Prices

For every dollar you put in one-year bonds,

you will get (1+ i1t) dollars next year.

For every dollar you put in two-year bonds,

you can expect to receive $1/$P2t times
$Pe1t+1 dollars next year.

●If you hold a two-year bond, the price at which you will sell it next year
is uncertain—risky.
 Figure 15 - 2
Returns from Holding
One-Year and Two-Year
Bonds for One Year
●The expectations hypothesis states that investors care
only about expected return.

●If two bonds offer the same expected one-year return,

then:
$ P e 1t +1
1 + i1t =
$ P2 t
Return per dollar from
Expected return per dollar
holding a one-year bond for
from holding a two-year
one year.
bond for one year.
●Arbitrage relations are relations that make the expected
returns on two assets equal.

●Arbitrage implies that the price of a two-year bond today

is the present value of the expected price of the bond next
year.

$ P e 1t +1
$ P2 t =
1 + i1t
The price of a one-year bond next year will depend on the one-year rate next
year.

$100
$P e
1t +1 =
(1 + i e 1t +1 )
Arbitrage and Bond Prices

● Given $ P e 1t +1 $100
$ P2 t =
and
$P e
1t +1 = , then:

1 + i1t (1 + i e 1t +1 )

$100
$ P2 t =
(1 + i1t )(1 + i e 1t +1 )

In words, the price of two-year bonds is the present value of the payment in two years—
discounted using current and next year’s expected one-year interest rate.
From Bond Prices to Bond Yields
●The yield to maturity on an n-year bond, or the n-year interest rate, is the
constant annual interest rate that makes the bond price today equal to the
present value of future payments of the bond.

$100 $100 $100

$ P2 t = 2 =
, then:
(1 + i2 t ) 2 (1 + i2 t ) (1 + i1t )(1 + i e 1t +1 )

therefore: (1 + i2t ) 2
(
= (1 + i1t ) 1 + i1et +1 )
From here, we can solve for i2t.
From Bond Prices to Bond Yields
●The yield to maturity on a two-year bond, is closely
approximated by:

1
i2 t  (i1t + i1t +1 )
e
2
In words, the two-year interest rate is (approximately) the average of the current one-year
interest rate and next year’s expected one-year interest rate.

Long-term interest rates reflect current and future expected short-term interest
rates.
Interpreting the Yield Curve

●An upward sloping yield curve means that long-term interest rates are
higher than short-term interest rates. Financial markets expect short-term
rates to be higher in the future.
●A downward sloping yield curve means that long-term interest rates are
lower than short-term interest rates. Financial markets expect short-term
rates to be lower in the future.
●Using the following equation, you can fine out what financial markets
expect the 1-year interest rate to be 1 year from now:

ie
1t +1 = 2i2 t − i1t
Stock Prices as Present Values
●The price of a stock must equal the present value of future
expected dividends, or the present value of the dividend next
year, of two years from now, and so on:
e e
$D $D
$Qt = +
t +1
+ ...
t +2
(
1 + i1t (1 + i1t ) 1 + i1t +1
e
)
In real terms,

Dte+1 Dte+ 2
Qt = + + ...
(
(1 + r1t ) (1 + r1t ) 1 + r1t +1e
e
)
Stock Prices as Present Values

D e t +1 De t +2
Qt = + + 
(1 + r1t ) (1 + r1t )(1 + r 1t +1 )
e

This relation has two important implications:

●Higher expected future real dividends lead to a higher real stock price.
●Higher current and expected future one-year real interest rates lead to a
lower real stock price.
Measuring value of
financial asset
Slides prepared by
Chandra Utama
In this lesson, you'll learn the steps required to determine the value of a bond. You'll also learn how to come
up with an appropriate discount rate to use in the bond value calculation.

Bond Terms
Horse Rocket Software has issued a five-year bond with a face value of $1,000 and a 10% coupon rate.
Interest is paid annually. Similar bonds in the market have a discount rate of 12%. Before we calculate
what this bond is worth, let's define some things. We'll first explain the term, give a definition, and then
give a brief example of how the term is expressed in our example we opened with.

Term Definition Our Example

The value of the bond to be
Face value $1,000
paid at maturity
The amount of interest to be
Coupon rate 10%
received annually
The required return rate for
Discount rate 12%
an investor
The date the bond will be Five-year time period from
Maturity date
paid to the investor the date of the purchase

Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
Discount Rate
The discount rate of bond valuation is subjective for each investor. It reflects the investor's evaluation of the
entity issuing the bond in terms of how likely default might be. For example, a U.S. Treasury security will have
a very low discount rate since the U.S. has never defaulted on its debts. A new business, on the other hand,
will have a higher discount rate since the chances the business fails and defaults on its debts is much higher.
A good starting point is the market rate for bonds of similar quality and risk.
A quick review of the amount, rates, and date from our opening example can help us out here. Why would an
investor purchase a bond that pays 10% of the face value in annual interest payments when the discount rate
is 12%? Ordinarily, they wouldn't, unless the company issuing the bond discounts the purchase price and
offers the bond for less than the face value.
The bond is issued at a premium when the coupon rate is greater than the discount rate. The bond's
purchase price is greater than the face value. An investor is willing to pay more than the face value because
the expected cash flow from the bond will be greater than the required rate of return.
The bond is discounted when the coupon rate is less than the discount rate. The bond's purchase price is
less than the face value. Because the expected cash flow from the bond is below the required rate of return,
the investor will only purchase the bond when the price is below the face value. The Horse Rocket bond from
our opening example will need to be discounted since the discount or required rate is greater than the coupon
rate. The value of the bond will tell us how much the discount needs to be.

Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
Calculating the Bond Value
Calculating the value of a bond is a three-step process. Bonds have two income pieces. One is a stream of
periodic interest payments the investor receives. The other is the principal repayment of the investment,
which is made when the bond matures. What a bond is worth today is the combined present value of both of
these two income pieces.
We begin by calculating the interest payments. Interest payments are paid quarterly, semi-annually, or
annually for the duration of the bond. To keep things simple, the Horse Rocket bonds pay interest once per
year. Our face value is, as your recall, $1,000. And our coupon rate is 10%. That means we multiply $1,000
by 0.10 and this produces our answer. We make an interest payment of $100. Simple, right?
Next, we calculate the present values for the expected interest payments at a 12% discount rate for five
years. Then we calculate the present value of the principal repayment. Here is the basic formula for finding
the present value of a stream of cash flow:

Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
 Nilai PV adalah nilai
sekarang dari seluruh
arus kas yang akan
diterima sepanjang
umur dari obligasi.

Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
 Harga obligasi di
pasar akan sama
dengan nilai PV
obligasi
Bond value = $ 361.60 + $ 567.43 = $ 929.03

Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
Factors Influencing Bond Price

A bond's present value (price) is determined by the following formula:

Price = {Coupon_1}/{(1+r)^1} + {Coupon_2}/{(1+r)^2} + ... + {Coupon_n}/{(1+r)^n} +

{Face Value}/{(1+r)^n}

For example, find the present value of a 5% annual coupon bond with $1,000 face, 5
years to maturity, and a discount rate of 6%. You should work this problem on your
own, but the solution is provided below so you can check your work.

Price = {50}/{(1.06)^1} + {50}/{(1.06)^2} +{50}/{(1.06)^3} +{50}/{(1.06)^4} +

{50}/{(1.06)^5} + {1000}/{(1.06)^5} = 957.88

A change in any of these variables (coupon, discount rate, or time to maturity) will
influence the price of the bond.
Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
A higher coupon rate will increase the value of the bond.

Find the price of the above bond if the coupon rate changes to:
a. 4%
b. 6%
c. 7%
Price_a = {40}/{(1.06)^1} + {40}/{(1.06)^2} + {40}/{(1.06)^3} + {40}/{(1.06)^4} +
{40}/{(1.06)^5} + {1000}/{(1.06)^5} = 915.75
Price_b = {60}/{(1.06)^1} + {60}/{(1.06)^2} + {60}/{(1.06)^3} + {60}/{(1.06)^4} +
{60}/{(1.06)^5} + {1000}/{(1.06)^5} = 1,000
Price_c = {70}/{(1.06)^1} + {70}/{(1.06)^2} + {70}/{(1.06)^3} + {70}/{(1.06)^4} +
{70}/{(1.06)^5} + {1000}/{(1.06)^5} = 1,042.12
The higher the coupon rate, the higher the value of the bond, all else equal. In the
particular case where the coupon rate is equal to the discount rate, then the bond's
price is the same as its par value (since the bond cannot command a premium or
require a discount).
Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
A higher discount rate will decrease the value of the bond
Find the price of the original bond (coupon rate = 5%, 5 years to maturity, $1,000
face value) if the discount rate changes to:
a. 4%
b. 5%
c. 7%
Price_a = {50}/{(1.04)^1} + {50}/{(1.04)^2} + {50}/{(1.04)^3} + {50}/{(1.04)^4} +
{50}/{(1.04)^5} + {1000}/{(1.04)^5} = 1,044.52
Price_b = {50}/{(1.05)^1} + {50}/{(1.05)^2} + {50}/{(1.05)^3} + {50}/{(1.05)^4} +
{50}/{(1.05)^5} + {1000}/{(1.05)^5} = 1,000.00
Price_c = {50}/{(1.07)^1} + {50}/{(1.07)^2} + {50}/{(1.07)^3} + {50}/{(1.07)^4} +
{50}/{(1.07)^5} + {1000}/{(1.07)^5} = 918.00
The higher the discount rate, the lower the value of the bond, all else equal. Again, in
the particular case where the coupon rate is equal to the discount rate, then the
bond's price is the same as its par value (since the bond cannot command a
premium or require a discount).
Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
A longer term to maturity will decrease the value of the bond.

Find the price of the original bond (coupon rate = 5%, $1,000 face value, discount
rate of 6%) if the term to maturity changes to:
a. 2 years
b. 10 years
c. 30 years
Price_a = {50}/{(1.06)^1} + {50}/{(1.06)^2} + {1000}/{(1.06)^2} = 981.67
Price_b = {50}/{(1.06)^1} + {50}/{(1.06)^2} + ... + {50}/{(1.06)^{10} +
{1000}/{(1.06)^{10} = 926.40
Price_c = {50}/{(1.06)^1} + {50}/{(1.06)^2} + ... + {50}/{(1.06)^{30} +
{1000}/{(1.06)^{30} = 862.35
The longer the term to maturity, the lower the value of the bond, all else equal. The
bulk of a bond's value is derived from the face value paid at maturity -- the longer the
time to maturity, the more the discount rate will reduce the present value of that face
value.
Sumber: https://study.com/academy/lesson/bond-valuation-formula-steps-examples.html
Soal PR
Soal 1:
a. Hitunglah Present value dari obligasi (bond) yang diterbitkan perusahaan XYZ
Berikut informasi mengenai obligasi:
Face value (nilai buku) dari obligasi – $ 2000
Maturity period (periode jatuh tempo) dari obligasi– 5 tahun
Coupon rate tahunan – 9%
Suku bunga pasar – 10%
Perusahaan melakukan pembayaran kupon setiap tahun. Hitunglah nilai sekarang
(present value) dari arus kas yang akan diterima dari obligasi tersebut.

b. Misalkan perusahaan XYZ membayar kupon setiap 6 bulan.

Jika dibayarkan setiap 6 bulan maka periode pembayaran ada 10 periode.
Sedangkan coupon rate dan bunga pasar setiap periodenya adalah 4.5% dan 5%.
Hitunglah present value (PV) arus kas dari dari obligasi:
Soal 2.
a. Hitunglah Present value dari obligasi (bond) yang diterbitkan perusahaan ABC
Berikut informasi mengenai obligasi:
Face value (nilai buku) dari obligasi – $ 2000
Maturity period (periode jatuh tempo) dari obligasi– 10 tahun
Coupon rate tahunan – 9%
Suku bunga pasar – 10%
Perusahaan melakukan pembayaran kupon setiap tahun. Hitunglah nilai sekarang
(present value) dari arus kas yang akan diterima dari obligasi tersebut.

b. Misalkan perusahaan ABC membayar kupon setiap 3 bulan.

Hitunglah present value (PV) arus kas dari dari obligasi:
Soal 3.

Jika pada tahun ke 3 dari umur obligasi perusahaan ABC dan XYZ, bank sentral
melakukan kebijakan moneter ketat sehingga suku bunga naik (bunga pasar)
menjadi 15%.

a. Hitung berapa harga masing-masing harga obligasi perusahaan ABC dan XYZ
(1.a; 1.b; 2.a; 2b).
b. Berapa persen perubahan harga obligasi dibandingkan harga obligasi di soal 1
dan 2.

Harga obligasi di
pasar akan sama
dengan nilai PV
obligasi
Soal 4.

Jika pada tahun ke 3 dari umur obligasi perusahaan ABC dan XYZ, bank sentral
melakukan kebijakan moneter longgar sehingga suku bunga turun (bunga pasar)
menjadi 5%.

a. Hitung berapa harga masing-masing harga obligasi perusahaan ABC dan XYZ
(1.a; 1.b; 2.a; 2b).
b. Berapa persen perubahan harga obligasi dibandingkan harga obligasi di soal 1
dan 2.

Harga obligasi di
pasar akan sama
dengan nilai PV
obligasi
Soal 5.
a. Berilah penjelasan anda persentase perubahan harga obligasi terkait:
coupon, discount rate, or time to maturity.
Boleh gunakan contoh sendiri.
b. Terkait soal 5.a, bagaimana persentase perubahan harga surat berharga yang
maturity nya tak hingga, misalnya saham (tidak ada maturuty date) dan menjanjikan
deviden setiap tahun jika perkiraan suku bunga dipasar turun (atau naik).
Bandingkan dengan obligasi 5 tahun dan 10 tahun yang menjanjikan arus kas sama
dengan saham.
Harga saham dan obligasi $1000
Arus kas per tahun: $50 (coupon 5%)
Suku bunga pasar awal 5%,
lalu naik menjadi 7.5%.
Turun menjadi 2.5%

Penjelasan: Coupon rate: bunga obligasi; discount rate: terkait bunga pasar; time to maturity: terkait umur obligasi.
Thank You