Skip to content

CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Fixed-Rate Bonds

A bond with a yield to maturity of 5% is trading in a market where the yield curve is upward sloping. Compared with discounting each cash flow at its spot rate, the bond's yield to maturity most likely:

The yield to maturity is a single rate that reflects the spot rates over the dates of the bond's cash flows. The effective weights depend on the size and timing of the cash flows, so it is neither an equal-weighted average nor independent of coupon timing.

  1. Aequals a weighted average of the spot rates with weights of equal size
  2. Bis a single rate that reflects the spot rates over the cash flow datesCorrect
  3. Cis unaffected by the timing of the coupon payments

Explanation

YTM is a complex blend of the spot rates over the dates of the cash flows, with the weighting depending on the size and timing of the cash flows. It is not a simple equal weighted average, and it does depend on the coupon timing and size.

Did you get it right without looking?

One question tells you little. A timed set on Yield and Yield Spread Measures for Fixed-Rate Bonds shows your real accuracy, how long you take and where you lose marks.

Practise Yield and Yield Spread Measures for Fixed-Rate BondsFree diagnostic mock

More Yield and Yield Spread Measures for Fixed-Rate Bonds questions