3. Bond valuation Choose the correct answer in each drop down box in the passage ( options written below in order of passage) -Select- present / future / terminal constant / inverse / parallel falls / rises / stabilizes falls / rises / stabilizes par / discount / premium increase / decrease / flatten par / discount / premium increase / decrease / flatten

The value of any financial asset is the -[Select]- value of the cash flows the asset is expected to produce. For a bond with fixed annual coupons, its value is equal to the present value of all its annual interest payments and its maturity value as shown in the equation below: (deleted) For fixed-rate bonds it's important to realize that the value of the bond has a(n) -[Select]- relationship to the level of interest rates. If interest rates rise, then the value of the bond -[Select]- ; however, if interest rates fall, then the value of the bond -[Select]- . A -[Select]- bond is one that sells below its par value. This situation occurs whenever the going rate of interest is above the coupon rate. Over time its value will -[Select]- approaching its maturity value at maturity. A -[Select]- bond is one that sells above its par value. This situation occurs whenever the going rate of interest is below the coupon rate. Over time its value will -[Select]- approaching its maturity value at maturity. A par value bond is one that sells at par; the bond's coupon rate is equal to the going rate of interest. Normally, the coupon rate is set at the going market rate the day a bond is issued so it sells at par initially.