Question

which one of the following statements about bond is not true? the value, or price, of any asset is the future value of its cash flows. to compute a bond's price, one needs to calculate the present value of the bond's expected cash flows. the expected future cash flows are estimated using the coupons that the bond will pay and the maturity value to be received. the required rate of return, or discount rate, for a bond is the market interest rate called the bond's yield to maturity.

Answer 1

The incorrect statement about bonds is that their price is the future value of cash flows, whereas it is actually the present value of those cash flows, discounted by the yield to maturity. Therefore correct option is A

Step-by-step explanation:

The statement about bonds that is not true is: "the value, or price, of any asset is the future value of its cash flows." In actuality, the value or price of a bond is the present value of its future cash flows, not the future value. To compute a bond's price, one must calculate the present value of the bond's expected cash flows, which are the regular coupon payments and the final repayment of the bond's face value at maturity. These expected future cash flows are discounted back to their present value using the required rate of return or discount rate, which is synonymous with the bond's yield to maturity. This rate reflects both the interest rates prevailing in the market and the perceived riskiness of the borrower's ability to repay the bond.