The Yield to Maturity on a Bond Is ________

question 54

Multiple Choice

The yield to maturity on a bond is ________.

• A) below the coupon rate when the bond sells at a discount,and equal to the coupon rate when the bond sells at a premium.
• B) the discount rate that will set the present value of the payments equal to the bond price.
• C) based on the assumption that any payments received are reinvested at the coupon rate.
• D) none of these.
• E) a,b,and c.

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Definitions:

Compounded Quarterly

The process whereby the interest earned on an investment is calculated and added to the principal sum every three months, then the new total is used for the next compounding period.

Compounded Annually

The process where the interest earned in one period is added to the principal, and then interest in the next period is calculated on the new total.

Annual Payments

Regular payments made once a year, often related to loans, annuities, or other financial instruments.

EAR

Stands for Effective Annual Rate, which is the real return on an investment, accounting for the effect of compounding interest over a period.