### Discount Rate, Yield to Maturity, Value of the Share, E/P Ratio and Ke

**Discount Rate: -**It is the rate of return that investors expect from securities of comparable risk.

**Bonds or Debentures: -**Theseare debt instruments or securities. In case of abond/debenture the stream of cash flows consists of annual interest payments and repayment of principal. These flows are fixed and known.

**The Value of the Bond: -**Itcan be found by capitalising cash flows at a rate of return, which reflects their risk. The market interest rate or yield is used as the discount rate in case of bonds (or debentures). The basic formula for the bond value is as follows:

**Yield to Maturity: -**A bond’s yield to maturity or internal rate of return can be found by equating the present value of the bond’s cash outflows with its price in the above equation.

**Zero-Interest Bonds**(called zero-coupon bonds in USA) do not have explicit rate of interest. They are issued for a discounted price; their issue price is much less than the face value. Therefore, they are also called

**deep-discount bonds**. The …