The value of a bond is the present value of its coupon payments plus the present value of its par value. The discount rate used to determine bond value is the required return, which may differ from the bonds coupon rate. A bond can sell at a discount, at par, or at a premium, depending on whether the required return is greater than, equal to, or less than its coupon rate. The chance that interest rates will change and thereby alter the required return and bond value is called interest rate risk. The shorter the amount of time until a bonds maturity, the higher its coupon rate, or the higher its required return, the less responsive is its market value to a change in the required return. The passage of time affects bond prices. The price of a bond will approach its par value as the bond moves closer to maturity. LG