Similar to stock prices, bond values are derived as the discounted value of all cash flows received from bond ownership in exchange for the bond's price. The two main cash flows an investor receives in exchange for purchasing a bond are:

Question

Saul Massey

Business

4 June, 00:19

Similar to stock prices, bond values are derived as the discounted value of all cash flows received from bond ownership in exchange for the bond's price. The two main cash flows an investor receives in exchange for purchasing a bond are:

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Answers (1)

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Sage Lowe · Answer 1

Answer: b. Interest or Coupon Payments (PMT) throughout the bond's life expand and the repayment of the principal or Face Value at the bond's maturity (FV).

Explanation:

For most bonds, a bond holder receives interest payments from the bond issuer in terms of coupon payments for the duration of the life of the bond. The coupon payment is a steady payment based on the par value of the bond.

When the bond matures, the bond holder receives the Principal/Face Value of the bond back. This value of usually the Par value of the bond regardless of how much the bond holder bought the bond for.