Bond series A and B have the same face value and same yearly coupon rate, paid once a year, at the end of each December.

Four of the next statements are true. One statement is false. Choose the false statement. (In computational problems, show the basic equation(s) you used to solve the problem. In verbal problems, briefly explain your choice and why you dismissed the other answers)

1. If both series come to maturity at the same date, and B is traded in discount while A is traded in premium, then the yield to maturity that investors demand from bond B is higher, probably due to higher risk of B compared to A
2. If both series were issued by the same company and come to maturity at the same date, but bond A is a callable bond while bond B is a regular (straight) bond, then bond A will be traded in higher prices compare to bond B
3. If the yield to maturity that investors demand from bond A is higher than the yield to maturity that investors demand from bond B and, in addition, the maturity date of bond A is two years shorter (say, 31/12/2032 for bond A compared to 31/12/2034 for bond B), then bond B will be more expensive (traded in a higher price) than bond A
4. If both series come to maturity at the same date, then assuming the YTM on the two bonds are fixed (YTM_A and YTM_B do not change over the investment horizon), the difference between the market price of series A and the market price of series B (if such a difference exists) will gradually decrease as the maturity date approaches
5. If both series were issued by the same company and come to maturity at the same date, but bond A is a convertible bond while bond B is a regular (straight) bond, then the YTM on bond A might be considerably lower than the YTM of bond B due to in the money (or close to in the money) conversion option