Question
A corporate bond's yield to maturity Blank______.
Multiple select question.
remains fixed over the life of the bond
can be greater than, equal to, or less than the bond's coupon rate
is always equal to the bond's coupon rate
changes over time
Multiple select question.
remains fixed over the life of the bond
can be greater than, equal to, or less than the bond's coupon rate
is always equal to the bond's coupon rate
changes over time
Answers
GPT-4o mini
In regards to a corporate bond's yield to maturity (YTM), the correct options from your list would be:
1. **remains fixed over the life of the bond** - This is true in the sense that YTM is calculated at the time of purchase and remains constant as long as the market price of the bond does not change. However, if the bond is traded in the market, its YTM can change based on market prices.
2. **can be greater than, equal to, or less than the bond's coupon rate** - This is also true as the YTM can be higher or lower than the coupon rate depending on the market price of the bond. If the bond is selling at a discount, the YTM will be higher than the coupon rate; if selling at a premium, the YTM will be lower than the coupon rate; if selling at par, they will be equal.
Therefore, the correct answers are:
- **can be greater than, equal to, or less than the bond's coupon rate**
- The statement about remaining fixed could be interpreted in certain contexts but may not universally apply without considering changes in market conditions.
The other options, "is always equal to the bond's coupon rate" and "changes over time," are incorrect under specific clarifications regarding the definition of YTM. YTM isn't always equal to the coupon rate and can also change based on market conditions, although the initial calculated YTM for an investor who holds the bond to maturity remains fixed.
1. **remains fixed over the life of the bond** - This is true in the sense that YTM is calculated at the time of purchase and remains constant as long as the market price of the bond does not change. However, if the bond is traded in the market, its YTM can change based on market prices.
2. **can be greater than, equal to, or less than the bond's coupon rate** - This is also true as the YTM can be higher or lower than the coupon rate depending on the market price of the bond. If the bond is selling at a discount, the YTM will be higher than the coupon rate; if selling at a premium, the YTM will be lower than the coupon rate; if selling at par, they will be equal.
Therefore, the correct answers are:
- **can be greater than, equal to, or less than the bond's coupon rate**
- The statement about remaining fixed could be interpreted in certain contexts but may not universally apply without considering changes in market conditions.
The other options, "is always equal to the bond's coupon rate" and "changes over time," are incorrect under specific clarifications regarding the definition of YTM. YTM isn't always equal to the coupon rate and can also change based on market conditions, although the initial calculated YTM for an investor who holds the bond to maturity remains fixed.