What happens to a discount bond as the time to maturity decreases?
A)the coupon rate increases.
B)the bond price increases.
C)the coupon rate decreases.
D)the bond price decreases.

Question

Quizplus · Accepted Answer

As the time to maturity decreases for a discount bond, its price generally increases. This is because the bond is getting closer to its maturity date, at which point it will be redeemed at its face value, which is higher than the price at which it was purchased (assuming it was bought at a discount). This price increase helps the bond's yield to maturity align with its fixed coupon rate and market interest rates.

What Happens to a Discount Bond as the Time to Maturity