How Is the Value of a Bond Determined

question 23

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:

Securities

Instruments of finance that showcase either an equity interest in openly traded firms, a credit arrangement with a state body or industrial entity via bonds, or proprietary rights within options.

Financial Markets

Platforms or systems that facilitate the buying, selling, and trading of financial securities, such as stocks and bonds, commodities, and other financial instruments.

Capital Budgeting Decision

The process of deciding which long-term investments should be undertaken by a business.

Debt

A quantity of money that one party lends to another, with the expectation that it will be repaid in the future, often along with interest.