- CFA Exams
- CFA Exam: Level I 2021
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 2. Relationships between Bond Price and Bond Characteristics

###
**CFA Practice Question**

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

Correct Answer: B

###
**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! |