A pricing theorem for the bond market states that if a bond's yield does not change over its life, then the size of its discount or premium will ___ at an increasing rate as its life gets shorter.

Question

Quizplus · Accepted Answer

The correct answer is that the size of a bond's discount or premium will decrease at an increasing rate as its life gets shorter, assuming the bond's yield does not change. This is because as the bond approaches its maturity date, its price converges towards its par value, reducing the magnitude of any premium or discount.

A Pricing Theorem for the Bond Market States That If