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Basic Question 12 of 13
The ______ must be reinvested at the ______ to earn the expected yield to maturity.
B. coupon payments; yield to maturity
C. coupon payments; current market rate
A. capital gain; current market rate
B. coupon payments; yield to maturity
C. coupon payments; current market rate
User Contributed Comments 3
| User | Comment |
|---|---|
| Cfrey | This is only if a bond isn't bought a premium/discount correct? |
| ascruggs92 | This is in all cases. Time Value calculations assume coupon payments are immediately reinvested at the prevailing rate of return. |
| khalifa92 | another perspective; yield to maturity is the internal rate of return (IRR) that equalize the discounted cash flows to present value. the IRR takes into account the reinvestment assumption! |
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Learning Outcome Statements
describe relationships among spot rates, forward rates, yield to maturity, expected and realized returns on bonds, and the shape of the yield curve;
describe how zero-coupon rates (spot rates) may be obtained from the par curve by bootstrapping;
CFA® 2025 Level II Curriculum, Volume 4, Module 26.