Which one of the following statements is true of a bond's yield to maturity?
A) The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.
B) It is the annual yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised.
C) A bond's yield to maturity changes daily as interest rates increase or decrease.
D) All of the above are true.

Question

Quizplus · Accepted Answer

A) True - Yield to maturity is calculated as the discount rate that makes the present value of all cash flows (coupon and principal payments) equal to the current market price of the bond.
B) True - Yield to maturity is the annual yield that an investor will receive if the bond is held until maturity and all payments are made as promised.
C) True - Yield to maturity is affected by changes in interest rates, and therefore changes daily.

Which One of the Following Statements Is True of a Bond's