A bond that is held to maturity A. will necessarily have a yield to maturity equal to the coupon rate. B. will necessarily earn the yield to maturity at the time of purchase. C. may earn more or less that its yield to maturity at the time of purchase because the rate at which coupons can be reinvested may change. D. will earn the yield to maturity at the date of maturity.
Question
A bond that is held to maturity A. will necessarily have a yield to maturity equal to the coupon rate. B. will necessarily earn the yield to maturity at the time of purchase. C. may earn more or less that its yield to maturity at the time of purchase because the rate at which coupons can be reinvested may change. D. will earn the yield to maturity at the date of maturity.
Solution 1
A bond that is held to maturity may earn more or less than its yield to maturity at the time of purchase because the rate at which coupons can be reinvested may change.
Solution 2
A bond that is held to maturity may earn more or less than its yield to maturity at the time of purchase because the rate at which coupons can be reinvested may change.
Similar Questions
Which one of the following statements is NOT true?Group of answer choicesThe 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.A bond's yield to maturity changes daily as interest rates increase or decrease.The realised yield is the yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised.The yield to maturity is the yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised.The term structure of interest rates shows the relationship between the yield to maturity and time to maturity.
Consider a coupon bond with a coupon rate of 10%. The face value amount is unknown. Suppose the bond is trading at a par. What can we say about yield to maturity of the bond? a. YTM = 10%. b. YTM is negative. c. There is not enough information to answer the question. d. YTM < 10%. e. YTM > 10%.
Show with an example the relationship between yield to maturity and the coupon rate of a bond when it is sold at a discount.
Bond A has a coupon rate of 10% and a yield of 13%. Bond B has coupon rate of 5% and sells for the same price as Bond A. Both bonds have the same face value and maturity. From this, which of the followings is the most inappropriate statement? A. The yield of Bond B is greater than 5%. B. The yield of Bond B is less than 10%. C. Bond A is a discount bond. D. Both bonds are discount bonds.
The price of a coupon bond and the yield to maturity are ________ related; that is, as theyield to maturity ________, the price of the bond ________.A) positively; rises; risesB) negatively; falls; fallsC) positively; rises; fallsD) negatively; rises; falls
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