Which of the following approaches is not associated to valuation of bonds ?
Which of the following approaches is not associated to valuation of bonds ?
Solution
✅ Correct Option: 3
Bonds are commonly valued by discounting cash flows (present value approach), by comparison with similar securities (relative price approach), and by replicating cash flows with zero-coupon bonds (arbitrage-free pricing). No method called the Scottish-differential approach exists.
Note: Option 2 is printed as "Arbitrage-face pricing"; we have read it as the standard arbitrage-free pricing approach.
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