What is the relationship between a bondholder's rate of return and the bond's yield to maturity if he does not hold the bond until it matures?
A) The rate of return will be lower than the yield to maturity.
B) The rate of return will be higher than the yield to maturity.
C) The rate of return will equal the yield to maturity.
D)There is no predetermined relationship between the rate of return and the yield to maturity.

Question

Quizplus · Accepted Answer

The rate of return that a bondholder receives depends on the price at which the bond was bought and the price at which it is sold. If the bond is sold before maturity, the rate of return will depend on prevailing interest rates and other factors that affect the bond's price. Therefore, there is no predetermined relationship between the rate of return and the yield to maturity.

What Is the Relationship Between a Bondholder's Rate of Return