Question

The price of a bond is equivalent to: I. Face value II. Projected interest payments discounted to the present III. The amortization amount of a bond IV. The present value of the principal payment Select one: A. I + III B. I – III C. II + IV D. I + II

Answer 1

Answer:

The price of a bond is equivalent to II + IV  (option C).

Explanation:

The promise made between two or more persons legally is referred to as a bond. Bonds are provided by companies in order to increase their capital balance. Interest is received during regular intervals by the purchaser.

The price of a bond is equal to the present value of all future interest payments added to the present value of the principal.

The price of the bond is not equal to face value; neither is

the amortisation amount of bond equivalent to the price of the bond.

Therefore, price of the bonds and amortisation amount of bond is not equivalent to the price of the bond.

So, The price of a bond is equivalent to II + IV  (option C).

Answer 2

The price of a bond is equivalent to Projected interest payments discounted to the present and The present value of the principal payment.

• A bond is simply known as a type of loan contract that exist between an issuer, the seller of the bond and a holder which is the purchaser of a bond.

The present value (PV) of a bond shows the sum of all the future cash flow from that contract until it matures with full repayment of the par value. .

Conclusively, To determine the present value of bond, is by the value of a bond today for a fixed principal (par value) to be repaid in the future at any predetermined time.

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