The discount rate that makes the present value of a bond's payments equal to its price is termed the:
A) dividend yield.
B) yield to maturity.
C) current yield.
D) coupon rate.

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) is the discount rate that makes the present value of a bond's future cash flows (interest payments and principal repayment) equal to its price. It takes into account the time value of money and the price paid for the bond, making it a more comprehensive measure of the return an investor can expect to receive from the bond. The other options (dividend yield, current yield, and coupon rate) refer to specific aspects of equity or bond investments, but do not capture the total return of the investment.

The Discount Rate That Makes the Present Value of a Bond's