Which of the following statements is correct?
A) The value today of a bond equals the present value of all of its future cash flows.
B) The value today of a bond is smaller than the present value of all of its future cash flows.
C) The value today of a bond is greater than the present value of all of its future cash flows.
D) The value today of a bond equals the future value of all of its future cash flows.

Question

Quizplus · Accepted Answer

The present value of all of the future cash flows of a bond equals its value today, as the present value of cash flows decreases as time goes on. Therefore, statement A is correct. Statement B implies that the bond is being sold at a discount, which may not always be the case, and statement C implies that the bond is being sold at a premium, which may also not always be the case. Statement D is incorrect since the value today of a bond is the present value of its future cash flows, not the future value of its future cash flows.

Which of the Following Statements Is Correct