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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

  1. 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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Transcribed Image Text

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

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