Yield to maturity of bond is the rate of return on bond

Assignment Help Financial Management

Reference no: EM131326842

In class you learned that the yield to maturity of a bond is the rate of return on the bond if you buy the bond today, hold it until its maturity date, and receive all the promised payments. When you talk to your friend Luis, who has been working in finance for a year, about it, he says: “The yield to maturity does not take the risk of default into consideration and because bond investors want to be compensated for the higher risk, the rate of return on most bond investments is higher than the YTM.” Is Luis correct, and why? Explain briefly!

Reference no: EM131326842

Questions Cloud

What is the average accounting rate of return for project : Use the following information for problems 1 through 5 I am considering two mutually exclusive 3yearr projects. Project A requires an investment in equipment of $120,000 and will produce net income of $20,000 per year. What is the average accounting ..

How effective are companies today with developing brand : How effective are companies today with developing their brand? Are you surprised at the ranking of the world's most valuable brands? Do you tend to purchase products that have brand recognition? Are there products that you are brand loyalist? What as..

Identify their product mix and product lines : Using Procter and Gamble as an example, go to their website and identify their product mix and product lines. The have multiple examples, so you may choose three each to illustrate this example. Of the ones you choose, which products within each prod..

What is present value of the interest tax shield : A us-based company permanently borrows $20 million at an interest rate of 8%, what is the present value of the interest tax shield? assume a 35% tax rate.

Yield to maturity of bond is the rate of return on bond : In class you learned that the yield to maturity of a bond is the rate of return on the bond if you buy the bond today, hold it until its maturity date, and receive all the promised payments. “The yield to maturity does not take the risk of default in..

What was the yield to maturity on the bond : Two years ago you bought a $1,000 zero-coupon bond, which matures in five and a half years from today. You are pleased, because the bond price increased by $52.17 since you purchased it. The yield to maturity on the bond is currently 5.29% (APR). Wha..

What is the bond effective annual yield to maturity : You currently own a $1,000 10-year corporate bond with a coupon rate of 7.2%. The bond was issued 3 years ago and you bought it two years ago. Currently, its quoted price is 105.8, but when you purchase it the price was 106.6. What is the bond’s effe..

What is annual effective yield to maturity on second bond : Today, on Nov 1 2016, you decide to diversify your retirement portfolio and talk to your financial advisor about investing in bonds. She recommends two different Canadian Treasury bonds, both of which have a $1,000 face value and pay semi-annual coup..

User Account

All Pages