1. What is the yield to maturity?
A. The interest rate that equates the present value of future payments of an asset with its current value.
B. The length of time before a bond expires and the issuer makes the face value payment to the buyer.
C. The value of the coupon expressed as a percentage of the par value of the bond.
D. The amount to be repaid by the bond issuer (the borrower) at maturity.
2. Why is the yield to maturity a better measure of the interest rate on a bond than is the coupon rate?
A. Because the coupon rate often calculates a much lower return than the yield to maturity.
B. Because the coupon rate can change whereas the yield to maturity is always constant.
C. Because the coupon rate takes into account the present value adjusted yield on the purchase price.
D. Because the coupon rate does not take into account the present value adjusted yield on the purchase price.