The Yield to Maturity of a Bond Is the Discount

question 26

Multiple Choice

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments:

• A) exceed the price of the bond.
• B) equal to zero.
• C) equal to the price of the bond.
• D) less than the price of the bond.

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Definitions:

Minimum Required Rate

The lowest return on investment that an investor is willing to accept, often influenced by the risk-free rate and the investor's risk tolerance.

Net Operating Income

The profit from a company's operations after subtracting operating expenses from gross income.

Operating Assets

Assets utilized in the day-to-day operations of a business to generate revenue, including machinery, buildings, and equipment.

Residual Income

The income that remains after subtracting all required costs of capital from operating income, a measure of profitability.