Explore BrainMass
Share

Bonds Valuation and Future Cash Flows

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Please give one real life example of bond or stock valuation and explain the concepts. Cite and list all references.

© BrainMass Inc. brainmass.com December 20, 2018, 12:29 pm ad1c9bdddf
https://brainmass.com/business/bond-valuation/bonds-valuation-future-cash-flows-599228

Solution Preview

Bonds valuation
What is bonds valuation?
According to an online source, the fundamental principle of bond valuation is that the bond's value is equal to the present value of its expected (future) cash flows. The same source further noted that the valuation process involves three steps: a) Estimate the expected cash flows; b) Determine the appropriate interest rate or interest rates that should be used to discount the cash flows; and c) Calculate the present value of the expected cash ...

Solution Summary

The solution provides an example of bond valuation. Bonds valuation is based on the principle that a bond's value is the present value of all its expected future cash flows until maturity, considering a certain discount rate. The steps involved are estimating the year-to-year future cash flows (using the annual interest rate), determining the discount rate, and computing the present value of all the expected future cash flows.

$2.19