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Valuing Bonds

In: Corporate Finance for Long-Term Value

Author

Listed:
  • Dirk Schoenmaker

    (Erasmus University Rotterdam)

  • Willem Schramade

    (Nyenrode Business University)

Abstract

This chapter introduces the basic types of bonds and considers their valuation. Bonds are an important source of funding for corporations. And even government bonds are relevant to companies, since the yield on government bonds serves as the risk-free rate discussed in Chap. 4 . We explain the drivers of bond yields and the term structure of interest rates. Subsequently, we discuss the liquidity and credit risk of corporate bonds, including the role of ratings. Social and environmental factors are increasingly being integrated in the valuation of corporate bonds. Studying the company’s business model is important for sustainability integration in the credit risk analysis of bonds. This chapter shows how to include a company’s adaptability to sustainability transitions into the credit risk analysis. Companies that can better adapt their business model face a lower credit risk and hence a lower cost of debt. In addition, there is innovation in the form of sustainability-linked bonds, green bonds, and social bonds to cater for sustainable investment projects.

Suggested Citation

  • Dirk Schoenmaker & Willem Schramade, 2023. "Valuing Bonds," Springer Texts in Business and Economics, in: Corporate Finance for Long-Term Value, chapter 8, pages 207-238, Springer.
    • Handle: RePEc:spr:sptchp:978-3-031-35009-2_8
    DOI: 10.1007/978-3-031-35009-2_8
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