Final answer:
The correct option is 1, 2, 3). The present value of a bond increases when the yield to maturity decreases or as the time to maturity of a premium bond decreases. This is because lower yields make existing bonds with higher coupon rates more valuable, and premium bonds approach face value as they near maturity.
Step-by-step explanation:
The question pertains to how various factors affect the present value of a bond. To determine which conditions increase the present value of a bond, we need to consider how changes in interest rates and time to maturity impact the bond's valuation.
Firstly, the present value of a bond increases when the yield to maturity decreases, because the bond's fixed coupon payments become more attractive when compared with the newly issued bonds that offer lower yields. Secondly, as the time to maturity of a premium bond decreases, the bond's present value increases because premium bonds are priced higher than their face value, and as maturity approaches, the price converges towards the face value. Lastly, while considering zero-coupon bonds, which do not offer periodic interest payments, the present value would actually decrease as the time to maturity increases due to the longer duration of compounding at the current yield to maturity.
Therefore, out of the options provided, only the second and fourth conditions result in an increase in the present value of a bond. The coupon rate decreasing, the current yield increasing, or the time to maturity of a zero coupon bond increasing would not cause an increase in present value.