Which of the following is a situation in which an investor will NOT receive the promised yield to maturity?
A) The investor holds the bond until maturity, and reinvests coupon payment at the original yield to maturity.
B) Interest rates do not change during the life of the bond.
C) The issuer calls the bond prior to original maturity.
D) The realized compound yield is equal to the promised yield to maturity.

Question

Which of the following is a situation in which an investor will NOT receive the promised yield to maturity? 
A) The investor holds the bond until maturity, and reinvests coupon payment at the original yield to maturity.
B) Interest rates do not change during the life of the bond.
C) The issuer calls the bond prior to original maturity.
D) The realized compound yield is equal to the promised yield to maturity.

Quizplus · Accepted Answer

If the issuer calls the bond prior to its original maturity, the investor may not receive the promised yield to maturity. This is because the investor must reinvest the principal repayments received at a lower interest rate, which can lead to a lower overall return. A, B, and D are situations where the investor would receive the promised yield to maturity.

Which of the Following Is a Situation in Which an Investor