- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 6. Fixed-Income Bond Valuation: Prices and Yields
- Subject 3. 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! |