Products & Their RisksQuestion 38 of 398
Yield to maturity (YTM) is best described as the total return an investor earns if the bond is:
a.Sold immediately at the current market price
b.Held until maturity, with coupons reinvested, accounting for any premium or discount
c.Called by the issuer on the first call date
d.Converted into common stock
Explanation
YTM measures the total annualized return assuming the bond is held to maturity and coupons are reinvested at the YTM, incorporating any gain or loss from a discount or premium price. It is not the return from an immediate sale, an early call (that is yield to call), or conversion.
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