Question: The Value of Bonds is affected by three elements…
Greetings, this is not a test question. I am just writing a very brief explanation that will provide a little more detail on the following. Thanks
The Value of Bonds is affected by three elements:
1.The amount and timing of the asset’s expected cash flows
2.The riskiness of these cash flows
3. The investor’s required rate of return for undertaking the investment.
In looking at #1, and “Amount”, are they talking about the amount of the issuer’s cash flows, or amount of the bond? As for “Timing”, timing of what?
In looking at #2 I assume their talking about risk as in current market conditions as well as the issuer’s credit worthiness? Is this correct
In looking at #3, I assume this simply means very simply the return rate an investor would require before agreeing to the investment.