A free-diver has plunged to a depth of 52.1 meters on a single breath, breaking a record in the process. David Vencl broke the record at Switzerland’s Lake Sils on Tuesday. After re-emerging, Vencl spat some blood, sat down for a moment, and then opened a bottle of champagne. Not to be outdone, Credit Suisse’s share price took a dive in Switzerland the following day, also breaking a record. No champagne is being popped to celebrate this one.

The lowdown

• 🛟 Credit Suisse secures $54 billion lifeline from Swiss central bank to shore up confidence.

• 🚫 US Government demands ByteDance sell TikTok or be banned due to national security concerns.

• ✂️ Stripe valuation almost cut in half to $50 billion after latest $6.5 billion raise.

Flex your finance muscle

Determining the market value of a bond

How did a rise in interest rates change the value of SVB’s portfolio of fixed income securities? Here we try to explain with a very simple example (where we have made some assumptions).

Scenario 1

A one-year bond is issued with a face value of $1,000. The reserve bank interest rate is 1% and so we will use this as our discount rate which is also the return that bondholders are demanding to hold the bond.

Face value = $1,000

Coupon rate annual = 1% or $10

Time = 1 year

Discount rate = 1%

Present value of annual payments = 10 / (1.01)1 = 9.9

Present value of face value = 1,000 / (1.01)1 = 990

Therefore, the market value of the bond is $1,000 (9.9 + 990). In this situation, the market value of the bond is equal to its face value.

Scenario 2

Interest rates increase to 4% just moments after the bond is issued (yes, very rapid). Due to the change in interest rates, a higher return is demanded by the market to hold the bond so we adjust the discount rate.

Face value = $1,000

Coupon rate annual = 1% or $10

Time = 1 year

Discount rate = 4%

Present value of annual payments = 10 / (1.04)1 = 9.61

Present value of face value = 1000 / (1.04)1 = 961

The market value of the bond is now $971 (9.61 + 961). The market value of the bond has fallen below its face value. There is an unrealized loss of $29.

If the bondholder holds the bond to maturity, then the face value will be paid out by the issuer. If the bondholder is forced to sell today, then the holder must accept the market value and the unrealized loss becomes an actual loss.

Featured stories

Pfizer tries another acquisition

CEO Albert Bourla said Pfizer will be able to deliver its latest acquisition Seagen’s cancer therapy to the world ‘at a scale that has not been seen before.’ Because of this, Pfizer believes Seagen could contribute over $10 billion in risk-adjusted revenue by 2030.

If true, this might justify the $43 billion being paid for the firm – an offer representing a 71% premium to Seagen's three-month share price. Shareholders are probably finding it a little hard to believe.

Pfizer has spent more than $230 billion on acquisitions since 2000 but its market value has increased by only $102 billion since then ($). With that record, shareholders are right to wonder whether this deal may be just another pflop.

The content we're consuming today

• FT: Larry Fink raises spectre of ‘slow rolling crisis’ after SVB failure ($).

• The New Yorker: A Coup at the WestView News ($).

Off-balance sheet items

• If you are like me, you make big plans to cook exciting recipes at the grocery store and then come home and let your food slowly rot in your fridge. Apparently there is another way – ‘zero waste cooking’ ($).

The bottom line