The amount borrowed initially and the market value of a note or bond at any date subsequent to the initial borrowing equals
A)the sum of the future cash flows.
B)the present value of the future, or remaining, cash flows discounted at an appropriate interest rate.
C)the future cash flows discounted at the initial market interest rate.
D)the future cash flows discounted at the subsequent market interest rate.
E)the future value of present cash flows discounted at an appropriate interest rate.

Question

Quizplus · Accepted Answer

The market value of a note or bond is the present value of its future cash flows, discounted at an appropriate interest rate. Therefore, option B is the correct answer. Option A is incorrect because it does not consider discounting the future cash flows, while options C, D, and E do not take into account changes in the interest rate or the appropriate discount rate.

The Amount Borrowed Initially and the Market Value of a Note