QUESTION 43 How many of the following statements is/are true? Statement 1: An increase in the market...

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Finance

QUESTION 43
How many of the following statements is/are true?
Statement 1: An increase in the market YTM after a bond ispurchased but before the first coupon date will lead to a realizedreturn equal to the YTM of the bond when the bond was purchased fora buy-and-investor.
Statement 2: A decrease in the market YTM after a bond ispurchased but before the first coupon date will lead to a realizedreturn equal to the YTM of the bond when the bond was purchased fora buy-and-investor.
Statement 3: A floating rate bond earns a rate of return equalto the YTM of the bond when it was purchased.
a.
0
b.
1
c.
2

Answer & Explanation Solved by verified expert

4.0 Ratings (637 Votes)

Statement 1 is false An increase in the YTM would mean that the coupon payments can be reinvested at a higher rate assuming that current YTM is the reinvestment rate Therefore the realized return for a buyandhold See Answer

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QUESTION 43How many of the following statements is/are true?Statement 1: An increase in the market YTM after a bond ispurchased but before the first coupon date will lead to a realizedreturn equal to the YTM of the bond when the bond was purchased fora buy-and-investor.Statement 2: A decrease in the market YTM after a bond ispurchased but before the first coupon date will lead to a realizedreturn equal to the YTM of the bond when the bond was purchased fora buy-and-investor.Statement 3: A floating rate bond earns a rate of return equalto the YTM of the bond when it was purchased.a.0b.1c.2