Question

Which of the following statements is TRUE?A. When yields increase, bonds with shorter maturities tend to decrease in value more than bonds with longer maturities.B. Over time, if yields do not change, the values of premium bonds decrease toward par smoothly.C. A "call provision" allows the bond holder the option to determine when they want the company to buy back the bond.D. Treasury Bonds are pure discount loans sold by the US government as a means to borrow money for less than one year.B. Over time, if yields do not change, the values of premium bonds decrease toward par smoothly.

Answer 1

Answer: The correct answer is "B. Over time, if yields do not change, the values of premium bonds decrease toward par smoothly.".

Explanation: A: It is false because when yields increase, bond prices decrease (generating more profitability).

B: TRUE.

C: A "call provision" allows the issuer (not the holder) of the bond to repurchase the bonds at a previously established price.

D: Treasury bonds have a maturity of 10 years.