What happens to the price of a bond as the maturity increases?

Interview Question: What happens to the price of a bond as the maturity increases?

Answer: It depends.

1) If the coupon rate = market rate/yield, the price remains the same

2) If the coupon rate > market rate/yield, the price goes up. The bondholder is receiving more than the going rate of bond, thus increasing the bond’s value.

3) If the coupon rate < market rate/yield, the price goes down. The bondholder is receiving less than the going rate of bond, thus decreasing the bond’s value.

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