What Is Meant by "Yield to Maturity"? It Is Measured

question 8

Multiple Choice

What is meant by "yield to maturity"? It is measured as the:

• A) coupon payment divided by the face value of the bond.
• B) coupon payment divided by the current price of the bond.
• C) rate that equates the bond's current price with the PV of its expected future cash flows.
• D) rate that equates the bond's face value with the PV of its expected future cash flows.

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Annuities

Financial products that guarantee a fixed or variable stream of payments over time, often used for retirement savings or to generate steady income during retirement.

Effective Annual Rate

The interest rate on a loan or financial product restated from the nominal rate as an annual rate, taking compound interest into account.

Compounded Value

Refers to the result of reinvesting the interest or earnings of an investment, causing it to grow exponentially over time.