Bonds and Equity Valuation

“The apparent paradox between the value of water and diamonds is resolved by the difference between total utility and marginal utility.”


Michael Foucault


After reading the chapter, you will be able to:

  1. Understand the concept and methods of bond valuation.

  2. Describe the various types of bonds and their value.

  3. Understand the concept of equity valuation.

  4. Discuss the dividend growth model and the price-earning model for equity valuation.


Firms can manage the financial risk associated with financial leverage in various ways. Some firms rely on leverage ratios like debt−equity ratios and interest coverage ratios. Firms also go for credit rating before issuing debt instruments ...

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