When the required return is different from the coupon interest rate and is assumed to be constant until maturity, the value of the bond will approach its par value as the passage of time moves the bond's value closer to maturity.

Question

Quizplus · Accepted Answer

As a bond approaches maturity, its price converges to its par value regardless of the required return, because the remaining cash flows become more predictable and the time value of money effect diminishes.

When the Required Return Is Different from the Coupon Interest