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.

Question

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.

Quizplus · Accepted Answer

The value of a bond is determined by calculating the present value of the bond's future cash flows, which includes interest payments and the face value of the bond at maturity. This present value is then discounted by one or more appropriate rate(s), such as the yield to maturity or the required rate of return. The perpetuity model, the constant growth dividend model, or the present value of the company's future cash flows are not relevant to the valuation of bonds, and therefore options B, C, and D are incorrect.

How Is the Value of a Bond Determined