How Is the Value of a Bond Determined

question 19

Multiple Choice

How is the value of a bond determined?

• A)The present value of the bond's future cash flows is discounted by one or more appropriate rate(s).
• B)The perpetuity model is used to determine the value of a bond.
• C)The present value of the company's future cash flows is discounted by one or more appropriate rate(s).
• D)The constant growth dividend model is often used to value bonds.

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Definitions:

Function

A relationship involving various inputs and permissible outputs, with the premise that each input is connected to exactly one output.

Thermostat

A device used to maintain the temperature of a system at a desired setpoint by regulating the flow of heat energy.

Degrees Fahrenheit

A scale of temperature on which water freezes at 32° and boils at 212° under standard conditions.

Domain

The collection of all potential x-values for which a given function exists.