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b. What do you notice about the price of the bond in relationship to the maturity of the bond? (Select t
best response.)
A. As the time to maturity increases, the price of the bond increases first and then decreases.
B. As the time to maturity increases, the price of the bond increases.
C. As the time to maturity increases, the price of the bond decreases.
D. As the time to maturity increases, the price of the bond decreases first and then increases.

Ask by Sanders Boyd. in the United States
Jan 24,2025

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As the time to maturity increases, the price of the bond decreases.

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Extra Insights

Bond prices are heavily influenced by interest rates and the time to maturity. Typically, when you extend the time to maturity, the bond’s price becomes more sensitive to changes in interest rates. Therefore, it’s common to see that bond prices can initially increase due to the accumulation of interest but may eventually decrease as the bond approaches maturity, particularly if interest rates rise.
Understanding this relationship can help investors make informed decisions. For example, in a rising interest rate environment, bonds with longer maturities may decrease more in price compared to shorter-term bonds, making it crucial to consider both your investment horizon and interest rate trends when buying bonds.

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