What is the relationship of the value of a security to the holding period of investors? Why is this so?
The value of a security is independent of the holding period of any investor since all investors will calculate the same value for every security no matter how long they plan to hold it. We model the value of a security as the present value of the future cash flows from owning the security discounted at the appropriate required rate of return. An investor who considers selling a security prior to its maturity date would forecast that the buyer would pay the present value of the remaining cash flows. Accordingly, the investor would receive the same remaining value regardless of whether the security is held to maturity or sold at an earlier date.