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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! |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
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.