Which of the Following Statements Are Correct Concerning Yield-To-Maturity (YTM)

question 56

Multiple Choice

Which of the following statements are correct concerning yield-to-maturity (YTM) ?
I. YTM considers both interest income and price appreciation.
II. YTM assumes the bond is called at the earliest possible date.
III. YTM is a compounded rate of return.
IV. YTM assumes all interest payments are reinvested at the YTM rate.

• A) I and IV only
• B) I, III and IV only
• C) II, III and IV only
• D) I, II and III only

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Definitions:

Well-Diversified Portfolios

Investment portfolios that contain a wide variety of assets, aiming to minimize risk by spreading investments across different sectors or asset classes.

APT

Abbreviation for Arbitrage Pricing Theory, a multifactor financial model that describes the relationship between the return of a portfolio and the return of a single asset through a linear combination of macroeconomic factors.

CAPM

A model identifying the connection between the expected returns of assets, primarily shares, and their associated systematic risk, known as the Capital Asset Pricing Model.

Systematic Risk Factors

Market risks that affect the overall market and cannot be eliminated through diversification, such as interest rates, inflation, and economic cycles.