Question

What is Yield-to-Maturity?

Select one:

The annualized total return that a bond offers new buyers - assuming that the bond never defaults.

The annualized interest rate that a bond pays out each year (as a percentage of its current price) if it does not default.

The interest that a bond pays each year as a percentage of its face value rather than its current market price.

A measure of the amount of interest rate risk (also known as price risk) that a bond has.

A measure of the amount of reinvestment rate risk that a bond has.

Answer 1

Yield to maturity is the interest that a bond pays each year as a percentage of its face value rather than its current market price.

Yield to maturity is the annualized rate of return of a bond which is calculated over the face value of the amount not the market value of the bond and it is never assumed that that bond will never default.

It is neither a measure of interest rate risk nor reinvestment Risk.

So the correct answer would be e option (C)The interest that a bond pays each year as a percentage of its face value rather than its current market price