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. Risk Discount

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

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

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

    1. A representative measure of a range of prices that is calculated ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center