Which of the following statements is true?
A) The spot rate is a weighted average of the yields to maturity.
B) The spot rate is always higher than the yield to maturity.
C) The yield to maturity is a weighted average of spot rates.
D) The yield to maturity is always higher than the spot rate.

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) is indeed a weighted average of the spot rates for the respective periods until maturity. Spot rates represent the yield of a zero-coupon bond (a bond that pays no coupons and only pays its face value at maturity), and the YTM of a bond is calculated based on the present value of all future cash flows (coupons and principal) discounted at the spot rates for their respective maturities. Therefore, the YTM reflects the average of these spot rates, weighted by the present value of each cash flow.

Which of the Following Statements Is True