The yield to maturity on a bond is ________.
I.above the coupon rate when the bond sells at a discount,and below the coupon rate when the bond sells at a premium
II.the discount rate that will set the present value of the payments equal to the bond price
III.equal to the true compound return on investment only if all interest payments received are reinvested at the yield to maturity

Question

Quizplus · Accepted Answer

All three statements are true regarding the yield to maturity on a bond. Statement I is true because when a bond is sold at a discount, the yield to maturity will be higher than the coupon rate. Conversely, when a bond is sold at a premium, the yield to maturity will be lower than the coupon rate. Statement II is true because the yield to maturity is the discount rate that will make the present value of the bond payments equal to its price. Statement III is true because the yield to maturity is the compound return that an investor can earn if they reinvest all interest payments received from the bond at the same yield to maturity rate.

The Yield to Maturity on a Bond Is ________