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Lo
Lo asked in Business & FinanceOther - Business & Finance · 10 years ago

Finance Homework Question!?

The Yield to Maturity on a bond is

a.) Lower for higher risk-bonds. b.) The expected return on the bond for an investor who purchases the bond today. c.) Is generally equal to the coupon interest rate. d.) is fixed in the indenture.

Thanks!

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  • Gregg
    10 years ago
    Favorite Answer

    The answer is "B". "A" is wrong because the YTM is positively correlated to risk (ie, higher risk, lower price, higher YTM). YTM is rarely equal to the coupon, as bonds generally trade at premiums or discounts (which affect yield). YTM is not fixed in the bond indenture.

    Hope this helps.

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