Question

1. The price a well-informed investor would pay for an asset in a free and competitive market is called the:
   1. Market value
   2. Asset value
   3. Inherent value
   4. Fundamental value
2. True/False.  The price of a fixed-income security is uncertain up until the time it matures.

Answer 1

1. The price a well-informed investor would pay for an asset in a free and competitive market is called the Market value.

Market value of an asset is the value determined by market forces and agreed upon by a buyer and seller to be reasonable, the market value of an asset fluctuates with time.

Asset value is the value, based on the value of asset as appearing in the balance sheet of company. It is arrived at, after deducting costs related to asset like depreciation.

Fundamental value is true value of an asset or what an asset is actually worth. Fundamental value is often difficult to calculate because it is arrived at with the help of complex financial models, instead of using the existing prices prevailing in the market.

An investor is generally not aware Asset value and Fundamental value of an asset because of lack of data and complexity in their calculation. Hence, a well-informed investor would pay Market value for an asset in a free and competitive market

Answer is Market value.

2. The price of a fixed-income security is uncertain up until the time it matures. This statement is True

The price or market value of a fixed-income security is based on the rate of interest the bond pays called the coupon rate, compared to the current market yield for similar bonds. If a bond's coupon rate is higher than market rates, the value of the bond will be higher than the face amount to bring the yield an investor earns in line with current rates and vice versa.

A bond with a lower coupon rate will be more volatile than a bond with a higher coupon rate. Also, longer-term bonds are more volatile than bonds with a shorter time to maturity. Volatility in this case is the amount a bond's price changes in response to a specific change in interest rates.

But at maturity, it is certain that the bond will be redeemed at the price, mentioned in the terms of the issue, which may be at the face value or a certain premium .