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Ch.1 · Savings vs Investment Avenues · hard

What is 'yield to maturity' (YTM) of a bond?

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EXPLANATION

YTM is the total annualised return an investor would earn if they bought the bond at the current market price and held it to maturity, accounting for all coupon payments and the difference between purchase price and face value.

A.The annual coupon rate stated on the bond certificate

B.The dividend yield of the bond's equity component

C.The profit earned by selling the bond before maturity

D.The total return an investor earns if the bond is held till maturity, expressed as an annualised rate [✓ Correct]

EXPLANATION

YTM is the total annualised return an investor would earn if they bought the bond at the current market price and held it to maturity, accounting for all coupon payments and the difference between purchase price and face value.

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