Series 7 practice questionhardDebt Securities — Bond Yields — YTM
Which of the following yield measures takes into account the coupon payments, the purchase price, the time to maturity, and the difference between purchase price and par value?
- ANominal yield
- BCurrent yield
- CYield to maturity (YTM)✓ Correct answer
- DTax-equivalent yield
Explanation
Why C — Yield to maturity (YTM)
Yield to maturity (YTM) is the most comprehensive yield measure for bonds. It considers the annual coupon payments, the current market price, the par value at maturity, and the time remaining until maturity. YTM represents the total annualized return an investor will earn if the bond is held to maturity and all coupon payments are reinvested at the same rate. It is also known as the bond's internal rate of return.
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