The Four Steps to Determining the Price of a Bond

question 74

Multiple Choice

The four steps to determining the price of a bond are ________.

• A)determine the amount and timing of the present cash flows,determine the appropriate discount rate,find the present value of the lump-sum principal and the annuity stream of coupons,and add the PVs of the principal and coupons
• B)determine the amount and timing of the future cash flows,determine the appropriate discount rate,find the future value of the lump-sum principal and the annuity stream of coupons,and add the FVs of the principal and coupons
• C)determine the amount and timing of the future cash flows,determine the appropriate discount rate,find the present value of the lump-sum principal and the annuity stream of coupons,and multiply the PVs of the principal and coupons
• D)determine the amount and timing of the future cash flows,determine the appropriate discount rate,find the present value of the lump-sum principal and the annuity stream of coupons,and add the PVs of the principal and coupons

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Definitions:

Peg

Fixing the exchange rate of a currency by linking it to another currency or basket of currencies.

Fixed Exchange Rates

A currency system where the value of a country's currency is pegged to another currency, a basket of currencies, or a commodity like gold, minimizing fluctuations in exchange rates.

International Monetary Reserves

International monetary reserves are assets held by central banks or monetary authorities in various forms, such as foreign currencies, gold, and Special Drawing Rights (SDRs), used to back the currency and support economic policies.

Domestic Macroeconomic Adjustments

Changes made within a country's economy to address macroeconomic issues such as inflation, unemployment, and economic growth.