What happens to the value of a discount bond as it approaches its maturity date? What happens to the value of a premium bond as it approaches its maturity date?

The value of both a discount and premium bond converges on the bond’s maturity value as the maturity date approaches. In a discount bond, the periodic interest earned by the investor exceeds the coupon payment. The remaining interest adds to the bond’s value (much like a bank account where you withdraw less than the interest you earn, leaving the remainder to add to the balance of the account). Over time, the accumulation of interest not paid out moves the bond’s value to its maturity value. In a premium bond, the coupon payment exceeds the periodic interest earned by the investor. Each coupon contains both interest and some of the bond’s value (much like a bank account where you withdraw more than the interest you earn, reducing the balance of the account). Over time, the withdrawing of some of the bond’s value moves it to its maturity value.