financial maangement q&A

What happens when the market value and the intrinsic value of a bond are not equal to each other?

The present value of the asset’s expected future cash flows is equal to the intrinsic value of the asset. This value is the amount the investor considers to be a fair value, given the amount, timing, and riskiness of future cash flows. If the market is working efficiently, the market value of the asset will equal its intrinsic value. Whenever a security’s intrinsic value differs from its current market price, the competition among investors seeking opportunities to make a profit quickly drives the market price back to its intrinsic value.

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