Question of the Week

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.

Answer:

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.

Professionals FAQs
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    References from trusted friends or family members can help you find a financial planner; however, keep in mind that your friends' financial situations and goals may differ from yours and, therefore, their planners won't necessarily be the best fit for you.The Certified Financial Planner (CFP) Board of Standards certifies financial planners and maintains an online list of certified financial planners on its CFP Board of Standards website.
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  4. Under the USA, registration as an IAR includes all of the following EXCEPT:

    Under the USA, registration as an IAR includes all of the following EXCEPT: A. Minimum net capitalB. Passing a qualification examC. Filing a consent to service of processD. Posting a surety bond The correct answer is "A", since only an IA would need to prove minimum net capital requirements.