QUESTION 4 Which of the following statements are true? I. The price of discount

Question

QUESTION 4 Which of the following statements are true? I. The price of discount bonds will increase as the bond approaches maturity gene II. The price of discount bonds will decrease as the bond approaches maturity generating capital losses. IlI. The price of premium bonds will increase as the bond approaches maturity generating capital gains. IV. The price of premium bonds will decrease as the bond approaches maturity generating capital losses. ins. A. I and IV are true B. only Il is true OC.I and Ill are true D. Il and Ill are true E.11 and are true

Explanation / Answer

Answer is A.

Price of discount bonds will increase as the bond approaches maturity.
Capital gain is the difference between the current price and previous price.
So, with the increase in the price of discount bond as bond approach maturity bond, will generate capital gains.

Price of premium bonds will decrease as the bond approaches maturity.
Capital gain is the difference between the current price and previous price.
So, with the decrease in the price of premium bond as bond approach maturity bond, will generate capital losses.

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