The yield to maturity on a bond is ________.

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) is the discount rate that equates the present value of all cash flows to the current market price of the bond. It is the expected rate of return on a bond if it is held until maturity and all coupon payments are reinvested at the same rate. YTM is independent of whether the bond sells at a discount or a premium to its face value, and it may or may not be equal to the coupon rate. Choice A is incorrect because YTM is above the coupon rate when the bond sells at a premium, not equal to it. Choice C is partially correct because YTM assumes that all coupon payments are reinvested at the same rate as YTM, but it does not require that reinvestment assumption. Choice D is incorrect, as at least one choice is partially correct.

The Yield to Maturity on a Bond Is ________