Which of the following statements is most correct?
A) The price of a bond will approach its par value as it moves toward its maturity.
B) Over time, the price of a discount bond will rise if interest rate do not change.
C) The price of a bond will rise if the perceived credit quality of the issuer deteriorates.
D) a and b only.
E) All of the above.

Question

Quizplus · Accepted Answer

Both statements A and B are correct. As a bond approaches its maturity, its price tends to move closer to its par value, regardless of whether it was initially sold at a discount, premium, or at par. Additionally, the price of a discount bond will indeed rise over time towards its par value if interest rates remain constant, reflecting the decreasing time to maturity. Statement C is incorrect because if the perceived credit quality of the issuer deteriorates, the bond's price is likely to fall due to increased risk of default, not rise.

Which of the Following Statements Is Most Correct