Answer:
If everything else remains constant, a bond's present value will increase if:
2) The yield to maturity decreases: The yield to maturity (YTM) represents the effective interest rate an investor will earn on a bond if held until maturity. When the YTM decreases, it means that the bond's interest payments are relatively higher compared to the market's prevailing interest rates. As a result, the bond becomes more attractive to investors, leading to an increase in its present value.
3) The time to maturity increases: The time to maturity refers to the remaining duration until a bond reaches its maturity date. When the time to maturity increases, the bond has a longer period to generate interest payments. This longer period of expected cash flows increases the bond's present value.
On the other hand, the following factors would cause a decrease in a bond's present value:
1) The coupon rate decreases: The coupon rate is the fixed annual interest rate that a bond pays to its bondholders. If the coupon rate decreases, the bond's periodic interest payments decrease, resulting in a lower present value.
4) The face value of the bond increases: The face value, also known as the par value, is the amount the issuer promises to repay the bondholder upon maturity. If the face value increases, it means the bondholder will receive a larger payment at maturity. However, the present value of a bond represents the current worth of its future cash flows, and an increase in the face value does not affect those cash flows. Therefore, an increase in the face value of the bond does not directly impact its present value.
In summary, if everything else remains constant, a bond's present value will increase when the yield to maturity decreases and when the time to maturity increases. Conversely, a decrease in the coupon rate or an increase in the face value would cause the bond's present value to decrease.
Step-by-step explanation: