Which of the following statement is incorrect? The general pattern of cash flows from a bond...

Which of the following statement is incorrect? The general pattern of cash flows from a bond with a positive coupon rate are the coupon interest payments at regular intervals throughout the life of the bond and the face value payment on the maturity date. A bond's market price depends on its yield to maturity and when the YTM is equal to the coupon rate, the market price equals the face value. Cash payments from preferred stock dividends are scheduled to continue forever. To value businesses, assets, and securities, investors and financial managers use a general valuation model to calculate the future value of the historical net income values and that model unfortunately does not incorporate risk and return, and time value of money concepts. Most of the answers are correct.

Expert Solution

Answer :-

1.The general pattern of cash flows from a bond with a positive coupon rate are the coupon interest payments at regular intervals throughout the life of the bond and the face value payment on the maturity date.- True as cash flows includes coupon interest payments either annually , semi annually ( whatever may be the intervals ) and the face value payment on the maturity date.

2.A bond's market price depends on its yield to maturity and when the YTM is equal to the coupon rate, the market price equals the face value.- True as bonds market price is calculated using YTM, interest, face value and number of periods and when the YTM is equal to the coupon rate, the market price equals the face value.

3.Cash payments from preferred stock dividends are scheduled to continue forever.- False as it is not scheduled to continue forever. preferred stock dividends are paid first in comparison to equity dividends if dividends are declared.

4.To value businesses, assets, and securities, investors and financial managers use a general valuation model to calculate the future value of the historical net income values and that model unfortunately does not incorporate risk and return, and time value of money concepts.- true as the general valuation model does not incorporate risk and return, and time value of money concepts

5.Most of the answers are correct.- True

Required answer is statement 3

ekkarill92 answered 6 months ago

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