Investment VehiclesQuestion 36 of 110
Yield to maturity (YTM) of a bond takes into account which of the following that current yield ignores?
a.Only the annual coupon payment
b.Only the bond's face value
c.The issuer's dividend policy
d.The gain or loss realized as the bond price moves toward par at maturity
Explanation
Yield to maturity reflects the total return if a bond is held to maturity, including coupon income plus any capital gain or loss as the price converges to par. Current yield considers only the coupon relative to price. YTM therefore gives a more complete measure of a bond's return.
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