Whenever a bond's required return is different from its coupon interest rate, the passage of time will affect the bond's value, even if the required return remains constant until maturity.

Question

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If a bond's required return is different from its coupon interest rate, the passage of time will lead to changes in the bond's value. This is because the bond's price is determined by the present value of its future cash flows, which includes both the coupon interest payments and the return of the bond's principal at maturity. As time passes, the remaining cash flows become relatively closer in time, causing the bond's value to adjust to reflect the changing risk/reward trade-off perceived by investors.

Whenever a Bond's Required Return Is Different from Its Coupon