What Happens to a Discount Bond as the Time to Maturity

question 49

Multiple Choice

What happens to a discount bond as the time to maturity decreases?

• A)the coupon rate increases.
• B)the bond price increases.
• C)the coupon rate decreases.
• D)the bond price decreases.

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Definitions:

Lender of Last Resort

An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are deemed at risk of failure.

Financial Institutions

Financial Institutions are organizations such as banks, credit unions, and insurance companies that provide a wide range of financial services including deposits, loans, investments, and currency exchange.

Federal Funds Rate

The borrowing cost at which financial institutions lend and borrow federal funds (reserves at Federal Reserve Banks) from each other overnight.

Interest Rate

Interest rate is the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.