CFA Practice Question

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CFA Practice Question

The ______ must be reinvested at the ______ to earn the expected yield to maturity.

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!
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