Which of the following statements is true?
I. The spot interest rate is a weighted average of yields to maturity
II. Yield to maturity is the weighted average of spot interest rates and estimated forward rates
III. The yield to maturity is always higher than the spot rates
A) I only
B) II only
C) III only
D) I and III only

Question

Quizplus · Accepted Answer

Statement I is false. The spot interest rate is a specific interest rate for a particular time period, while the yield to maturity is the average annual return on all future cash flows that the bond will pay. Statement II is true as the yield to maturity is calculated by averaging the spot rates and expected future rates. Statement III is false as the yield to maturity can be either higher or lower than the spot rates depending on the shape of the yield curve.

Which of the Following Statements Is True