b. All else remaining the same, when the required return differs from the coupon interest rate and is assumed to be constant to maturity, what happens to the bond value as time moves toward maturity? (Select the best answer below.) A. The bond value approaches the amount of the last interest payment. B. The bond value approaches zero. C. The bond value approaches infinity. D. The bond value approaches the par value.

Question

Social Studies

Addison Farley

22 February, 13:27

b. All else remaining the same, when the required return differs from the coupon interest rate and is assumed to be constant to maturity, what happens to the bond value as time moves toward maturity? (Select the best answer below.) A. The bond value approaches the amount of the last interest payment. B. The bond value approaches zero. C. The bond value approaches infinity. D. The bond value approaches the par value.

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Answers (1)

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Johnny Wilkerson · Answer 1

D. The bond value approaches the par value.

Explanation:

The question above presents a case of discont bond. When this occurs, the value of the discont bond increases as its maturity approaches. In relation to this, the required return rate is totally different from the coupon rate, which may remain constant throughout the life in which the bond is valid. In this case, the bond price tends to move closer to its nominal value.