Which yield measure is most useful for investors with a view that interest rates will remain constant and the bond will not be called?
Explanation
YTM is the standard return measure for a 'hold-to-maturity' strategy in a stable environment.
Other questions
Which of the following assumptions is required for a bond investor to earn a rate of return exactly equal to the Yield to Maturity (YTM) at purchase?
The 'periodicity' of an effective annual rate is:
Calculate the price of a bond with a Face Value of 100, a coupon rate of 10 percent paid annually, and a maturity of 5 years, if the YTM is 15 percent.
A bond has an annual YTM of 12.83 percent. What is the Semiannual Bond Equivalent Yield?
Which of the following yield measures focuses solely on interest income and ignores the frequency of coupon payments and accrued interest?
What is the formula for the Current Yield of a bond?
How does 'street convention' yield differ from 'true yield'?
Corporate bonds typically use which day count convention?
The Government Equivalent Yield (GEY) is used to:
Which of the following best describes 'Simple Yield'?
Yield to Worst (YTW) is defined as:
An option-adjusted yield is calculated using:
If a bond has an embedded call option, its value to the investor is:
A 10-year bond with a 10 percent annual coupon is issued at 900. It is callable in Year 3 at 920. Which formula correctly sets up the calculation for Yield to Call (YTC) in Year 3?
The 'G-Spread' refers to the yield spread over:
Calculate the G-Spread for an 8-year corporate bond trading at 10 percent, given that the 6-year Government bond yields 6 percent and the 10-year Government bond yields 8 percent.
The 'I-Spread' is also known as the:
Which benchmark is commonly used for pricing and quoting euro-denominated corporate bonds using the I-Spread?
What is the 'Z-Spread'?
Why is the Z-Spread called the 'static spread'?
The Option Adjusted Spread (OAS) is calculated as:
On-the-run government bonds generally trade at:
Which of the following is considered a 'Microeconomic (bottom-up)' factor affecting yield spreads?
Assuming a bond price of 115.00 for a zero-coupon bond with 5 years to maturity. The YTM (annual compounding) is -2.7565 percent. What is the Effective Annual Rate?
If a 5-year zero-coupon bond has a price of 115.00, what is the semiannual bond equivalent yield (YTM)?
An annual rate having a periodicity of two is known as:
Why is the current yield considered a 'crude' measure of return?
Regarding Yield to Call (YTC), if a bond is currently trading at a premium and is callable at par:
Which spread measure is most appropriate for a bond with embedded options to isolate the credit risk premium?
If a callable bond has a Z-spread of 200 bps and the value of the call option is estimated to be 50 bps, what is the Option-Adjusted Spread (OAS)?
A bond issued at a price of 90, with a Face Value of 100, Coupon Rate 8 percent (Semiannual), and Maturity 5 years. What is the YTM?
The 'street convention' yield assumes:
Which of the following generally offers the lowest yield to maturity for a given maturity?
According to the text, a bond's 'Full Price' is equal to:
Which price is typically used for dealer quotations to avoid misleading investors about price trends?
In the calculation of Current Yield, what value is used in the denominator?
What does the Z-Spread curve represent in terms of volatility?
When calculating the G-Spread for a corporate bond with a maturity that does not match an on-the-run government bond, one must:
Which factor is NOT typically part of the risk premium component of a corporate bond's yield spread?
Issuers use the I-Spread primarily to:
If a bond's YTM is 10 percent and it pays coupons semiannually, the periodic rate used in calculations is:
How is the 'Government Equivalent Yield' (GEY) calculated from a corporate bond yield (30/360)?
If a bond is trading at 900 and is callable at 920 in 3 years, and the calculated YTM is 11.75 percent while the YTC is 11.77 percent, which is the Yield to Worst?
The price paid by a buyer to a seller, which includes accrued interest, is known as:
The Option-Adjusted Spread (OAS) is typically used to value:
Assuming a government bond yield is 8 percent. A corporate bond with the same maturity yields 10 percent. What is the nominal yield spread?
In the 'Yield to Call' calculation, the number of periods 'N' represents:
Which of the following describes the relationship between 'Flat Price' and 'Full Price'?
If a bond is trading at 975 with an Initial Margin of 102 percent of the Purchase Price (Loan Value), this setup relates to: