Discuss CSI IFC Exam Topic 3 Question 13

When comparing the current yield and yield-to-maturity of a bond, which statement applies?

AYield-to-maturity accounts for the reinvestment of coupon payments.

BYield-to-maturity is based on the current market value of the bond, not the price paid.

CCapital gains or capital losses are reflected in the current yield calculation.

DCurrent yield includes in the calculation the time to maturity.

Suggested Answer: A

This statement is correct because yield-to-maturity (YTM) is the annualized rate of return of a bond that assumes that all coupon payments are reinvested at the same rate until the bond matures. YTM takes into account the bond's current market price, par value, coupon rate, and time to maturity, and it calculates the compound interest earned on the reinvested coupons. Therefore, YTM reflects the total return of the bond, including both the interest income and the capital gain or loss.

Reference = Current Yield vs. Yield to Maturity - Investopedia, Yield to Maturity (YTM) - Investopedia, Bond Current Yield Calculator

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21 comments · newest first

Tamesha 2 days ago

But B isn't fully accurate. Price paid matters too.

Marcos 7 days ago

I lean towards B. Market value is key for YTM.

Frederick 12 days ago

Agreed, A makes sense. Current yield doesn't do that.

Jesusita 17 days ago

I think A is correct. YTM considers reinvestment.

Ciara 23 days ago

Right! Current yield is just about annual income.

Gabriele 28 days ago

D seems wrong. Time to maturity isn’t in current yield.

Pilar 1 month ago

True, C is off. Current yield is simpler.

Tyra 1 month ago

C is interesting. Current yield doesn’t factor in gains.

Skye 1 month ago

But B can be misleading. Price paid matters too.

Jenise 2 months ago

I’m leaning towards B. Market value is key for YTM.

Carylon 2 months ago

Agreed, A makes sense. It’s crucial for total return.

Stevie 2 months ago

I think A is correct. YTM considers reinvestment.

Lorenza 2 months ago

D) sounds off, current yield doesn't include time to maturity, right?

Reuben 2 months ago

Wait, C) is wrong, current yield doesn't factor in capital gains.

Lindsey 2 months ago

B) is misleading, it should consider the price paid too.

Rodolfo 3 months ago

Totally agree with A! It's a key factor.

Verdell 3 months ago

A) is correct, YTM does consider reinvestment.

Benedict 3 months ago

I vaguely recall that current yield only looks at the coupon payments relative to the price, so C might not be right either.

Edison 3 months ago

I practiced a similar question, and I’m pretty sure current yield doesn’t factor in time to maturity, so D seems wrong to me.

Lorrine 3 months ago

I’m not entirely sure, but I think yield-to-maturity is related to the bond's current market value, which makes me lean towards B.

Tanesha 4 months ago

I remember that yield-to-maturity does consider reinvestment of coupon payments, so I think A might be correct.

CSI IFC Exam - Topic 3 Question 13 Discussion