A 5-year corporate bond paying an annual coupon of 8% is sold at a price reflecting a yield-to-maturity of 6% per year. One year passes and the interest rates remain unchanged. If the term structure is flat and all other factors is constant，the bond's price during this period will have:

 

A.  Increased.

 

B.  Decreased.

 

C.  Remained constant.

 

D.  Cannot be determined with the data given

 

Answer:B

 

Since, the bond is sold at a premium. As time passes, the bond price will move towards par. Hence the price will decrease.