Which of the following statements is most correct?
A) The market value of a bond will always approach its par value as its maturity date approaches, provided the issuer of the bond does not go bankrupt.
B) If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would probably observe an immediate increase in bond prices.
C) The total yield on a bond is derived from interest payments and changes in the price of the bond.
D) Statements a and c are correct.
E) All of the statements above are correct.

Question

Quizplus · Accepted Answer

The market value of a bond typically approaches its par value as it nears maturity if the issuer remains solvent (statement A). The total yield on a bond includes interest payments and changes in its price (statement C). Statement B is incorrect because an expectation of increased inflation would likely lead to a decrease in bond prices.

Which of the Following Statements Is Most Correct