How does a coupon bond's yield to maturity differ from the spot interest rate that applies to cash flows occurring at the maturity of the bond? When are the two the same?
What will be an ideal response?
A coupon bond's yield to maturity is the internal rate of return that sets the present value of the promised coupon payments and principal payment equal to the bond price. The yield to maturity is therefore a kind of average of the spot interest rates at various maturities. The yield to maturity equals the spot interest rates at various maturities only when the term structure of interest rates is flat, that is, when the spot interest rates at various maturities are all identical.
You might also like to view...
Jan Lipson gave Sun City Realty an exclusive agency listing on her property. If she sells the Property herself without involving Sun City, She will owe Sun City
a. Half of the commission. b. All of the commission. c. No commission. d. Only reimbursement for Sun City's expenses.
An appraisal report has the three major subheadings of (I) Introduction, (II) Description of the area, neighborhood and property, and (III) Analysis, conclusions and opinions of value. This appraisal report is most likely a:
A: Letter form report; B: Narrative report; C: Short form report; D: Judicial report.