For a Premium Bond, the

question 50

Multiple Choice

For a premium bond, the

• A) Current yield is equal to the coupon rate but less than the yield-to-maturity
• B) Yield-to-maturity exceeds both the coupon rate and the current yield
• C) Coupon rate is equal to the yield-to-maturity, but less than the current yield
• D) Current yield is less than either the coupon rate or the yield-to-maturity
• E) Coupon rate exceeds both the yield-to-maturity and the current yield

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Definitions:

Expected Risk Premium

The additional return over the risk-free rate that investors demand to compensate for the risk of holding a risky asset.

Systematic Risk Principle

The concept that an investor can reduce the overall risk of an investment portfolio through diversification, except for inherent market risks that cannot be diversified away.

Efficient Markets Hypothesis

The efficient markets hypothesis is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.

Security Market Line

A representation in finance that shows the relationship between risk and return of a market.