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

Answer: 1) Multiple

2) Future

3) The two types of cash flows to price stocks are Dividends and Capital Gains. Dividends is the profit made by the company to its shareholders whereas Capital Gains is the potential increase in stocks price over time.

4) The two types of cash flows to price bonds are Coupon Payment and Principal Repayment. Coupon payments are the periodic interest payments made by the bond issuer to the bondholder, while the principal repayment represents the return of the bond's face value to the bondholder at maturity.

Step-by-step explanation:

Answer 2

1) The pricing models for bonds and stocks are based on multiple cash flows. Both bonds and stocks generate multiple cash flows over their respective holding periods, which are taken into consideration in the pricing models.

2) The pricing models for bonds and stocks are based on future cash flows. The models estimate the present value of the future cash flows associated with the bond or stock, taking into account the time value of money.

3) The two types of cash flows used to price stocks are dividends and capital gains. Dividends represent the periodic distributions of profits made by the company to its shareholders, while capital gains are the potential increase in the stock's price over time.

4) The two types of cash flows used to price bonds are coupon payments and the principal repayment. Coupon payments are the periodic interest payments made by the bond issuer to the bondholder, while the principal repayment represents the return of the bond's face value to the bondholder at maturity. These cash flows are discounted to their present value to determine the bond's price.