What is the relationship between an investment's rate of return and its yield to maturity for an investor that does not hold a bond until maturity?
A) Rate of return is lower than yield to maturity.
B) Rate of return is higher than yield to maturity.
C) Rate of return equals yield to maturity.
D) There is no predetermined relationship.

Question

Quizplus · Accepted Answer

The rate of return for an investor that does not hold a bond until maturity can vary based on a number of factors, such as changes in interest rates or credit risk. Yield to maturity, on the other hand, assumes that the bond will be held until maturity and all payments will be received as scheduled. Therefore, there is no predetermined relationship between the two for an investor who does not hold the bond until maturity.

What Is the Relationship Between an Investment's Rate of Return