A level-coupon bond has a yield-to-maturity of 10%. In order for an investor to be assured an average annual yield of 10% on his investment in the bond, which of the following is NOT
Necessary?
A)The investor must reinvest all the coupon payments he receives at 10%.
B)The issuer must not default or be late with its payments.
C)The investor must hold the bond until it matures.
D)All of the above are necessary to insure the investor earns an average annual return of 10% on this investment.

Question

Quizplus · Accepted Answer

The yield-to-maturity calculation assumes reinvestment of coupons at the yield-to-maturity rate, timely payments, and holding the bond until maturity. Therefore, all listed conditions are necessary to achieve the stated yield.

A Level-Coupon Bond Has a Yield-To-Maturity of 10