Which bond is most likely to exhibit a reduction in duration as time to maturity increases? A bond priced at:
- a discount.
- par.
- a premium.
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a) discount bond
correct me if I’m wrong
Yes, Answer is option A , please explain the reason.
As Maturity increases Price effect will dominate and over power discount effect that is why Duration of bond also decreases.
Premium bonds trades at higher price than FV so it approaches it’s FV as the time decreases due to The pull to per effect. I think no. 3 could be the ans.
Although i am not sure.
Correct me if i am wrong.