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# Each of the option‐free bonds listed below has a face value of $1,000:

If the yield to maturity for both the bonds remains constant over their remaining terms, over time there will most likely be an increase in the price of:

Question:

If the yield to maturity for both the bonds remains constant over their remaining terms, over time there will most likely be an increase in the price of:

A
Bond 1 only.

Explaination

• Bond 1 will be trading at a discount because its coupon rate is lower than the discount rate.

• Bond 2 will be trading at a premium because its coupon rate is greater than the discount rate.

• If yields remain constant until maturity, only Bond 1’s price will increase as it converges to its par value.

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