If You Buy a Bond That Is Selling for Less

question 63

Multiple Choice

If you buy a bond that is selling for less than its face, or maturity, value what will happen to the price (value) of the bond as the maturity date nears if market interest rates do not change during the life of the bond?

• A)Because interest rates remain constant, nothing happens to the market value of the bond.
• B)The price of the bond should decrease even further below the bond's face value because the rates in the market are too high.
• C)The price of the bond will increase as the bond gets closer to its maturity because the bond's value has to equal its face value at maturity.
• D)This question cannot be answered without additional information.
• E)None of the above is a correct answer.

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Definitions:

Falls

In physics, refers to the motion of an object under the influence of gravitational acceleration towards the Earth, without considerations for air resistance.

Horizontal

Referring to a direction or plane parallel to the ground or base line, at a right angle to the vertical.

Sketch Graph

The process of drawing a rough graph of a mathematical function or equation based on its key features, without the use of precise calculations.

Absolute Value

The distance of a number from zero on a number line, without considering direction.