Question

Investors, when calculating the present value of a bond's future cash flows (i.e, when valuing a bond), technically use which one of the following variables as the discount rate in the present-value calculations?

a. required return
b. yield to maturity
c. expected return
d. face value
e. coupon rate
f. time to maturity

Answer 1

b. yield to maturity

Step-by-step explanation:

The future cash flows of the bonds are discounted to the present value using the yield to maturity or market related rate of the bond. The required return of the bond represents the coupon payments that the bond is offering.