Q:
All of the following are true concerning the Yield-to-Maturity (YTM) of a bond EXCEPT:
a) YTM is the promised rate of return an investor will receive from a bond at the current market price if held to maturity.
b) It is sometimes known as the dollar-weighted return.
c) YTM assumes that the investor reinvests all coupons received from a bond at a rate equal to the computed YTM.
d) The premium or discount on the bond is not an important factor in the calculation of YTM.
A:
The correct answer is d):
YTM is the promised rate of return an investor will receive from a bond at the current market price if held to maturity. YTM takes into account the amount of the premium or discount (if any) and the time value of the investment. To calculate the YTM you must know the present value of the bond, future value, time to maturity, and the coupon rate. YTM is similar to the internal rate of return (IRR) it is also called dollar-weighted return.

RELATED FAQS

  1. On what basis does the sustainable growth rate fluctuate?

    Learn about the differences between the calculations for the yield to maturity and spot rate for determining the present ...
  2. What is the difference between yield to maturity and the spot rate?

    Find out how yield to maturity and spot rate calculations use different discount rates to determine the present market value ...
  3. What is the difference between yield to maturity and holding period return yield?

    Learn about the differences between a bond's yield to maturity (YTM) and its holding period return, and why bondholders should ...
  4. What does a negative bond yield mean?

    Find out what it means when a bond has a negative yield and what circumstances must arise for the yield to be negative when ...
  5. Can a bond have a negative yield?

    The return a bond provides to an investor is measured by its yield, which is quoted as a percentage. Current yield is a commonly ...
  6. What is the relationship between current yield and yield to maturity (YTM)?

    Learn about the relationship between a bond's current yield and its yield to maturity, including how the market price of ...
RELATED TERMS
  1. Yield To Maturity (YTM)

    The total return anticipated on a bond if the bond is held until ...
  2. Current Yield

    Annual income (interest or dividends) divided by the current ...
  3. Risk Discount

    A situation where a particular investor, either an individual ...
  4. Bond Quote

    The price at which a bond is trading. A bond quote is typically ...
  5. Discount Note

    A short-term debt obligation issued at a discount to par. Discount ...
  6. Average Price

    1. A representative measure of a range of prices that is calculated ...
Hot Definitions
  1. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such ...
  2. Death Taxes

    Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the ...
  3. Retained Earnings

    Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested ...
  4. Demand Elasticity

    In economics, the demand elasticity refers to how sensitive the demand for a good is to changes in other economic variables. ...
  5. Dark Pool

    A dark pool is a private financial forum or exchange for trading securities.
  6. Quadruple Witching

    The expiration date of various stock index futures, stock index options, stock options and single stock futures. All stock ...
Trading Center