A bond that promises to pay $X in 10 years must be worth less than $X now.

Question

Quizplus · Accepted Answer

This is because of the time value of money, where money today is worth more than the same amount of money in the future due to inflation and the opportunity cost of not having the money available for investment or consumption. Therefore, the bond must be priced at a discount to its face value in order to compensate investors for the time value of money.

A Bond That Promises to Pay $X in 10 Years