Question

About bond/stock pricing model:

1) The pricing models are based on __________ (single or multiple) cash flow(s)?
2) The pricing models are based on ___________(present or future) cash flow(s)?
3) There are two types of cash flows to price stocks. What are they?
4) There are two types of cash flows to price bonds. What are they?

Answer 1

The pricing models for stocks and bonds are based on multiple cash flows and present cash flows. Stocks are priced based on expected future profits and dividends, while bonds are priced based on interest payments and the repayment of the face value.

Step-by-step explanation:

The pricing models for bonds and stocks are based on multiple cash flows. These models take into account the various cash flows that will be received over time.

The pricing models are based on present cash flows. Present discounted value is used to calculate the appropriate prices for stocks and bonds based on the expected future payments.

There are two types of cash flows to price stocks: expected future profits earned by the firm and dividends that might be paid.

There are two types of cash flows to price bonds: payments of interest and the repayment of the face value of the bond.