Asked by
Katie Sanniota
on Dec 09, 2024
Verified
Which one of the following is the correct bond pricing equation?
A) Bond value = {C}{[1 - 1/(1 + r) ]/rt} + F - 1/(1 + r) t]/r
B) Bond value = {C}{[1 + 1/(1 + r) t]/r} + F/(1 + r) t
C) Bond value = {C}{[1 - 1/(1 + r) t]/r} + F/(1 + r) t
D) Bond value = {C}{[1 + 1/(1 + r) ]/rt} + F/(1 + r)
E) Bond value = {C}{[1 + 1/(1 + r) t]/r} + [F - (1 + rt) /r]
Bond Pricing Equation
A formula used to determine the fair price or value of a bond based on its expected cash flows, the face value, and the required rate of return.
Bond Value
The present worth of a bond's future interest payments and principal repayment, discounted at the market rate of interest.
Face Amount
The nominal or dollar value printed on a financial instrument, such as a bond or insurance policy.
- Interpret the methodology behind the valuation and pricing of bonds, including those with zero-coupon and floating-rate features.
Verified Answer
ST
Learning Objectives
- Interpret the methodology behind the valuation and pricing of bonds, including those with zero-coupon and floating-rate features.