Question

When computing an assets yield to maturity, does this represent a known or expected amount of return, why?

		Yield to maturity represents the known amount of return and cannot change.
		Yield to maturity represents the expected amount of return based on the future timing and size of cash flows, the yield to maturity can change if the future timing and size of cash flows change.
		Yield to maturity represents the promised amount of return from the issuer of the security and reflects the par value, coupon rate and maturity of the asset.
		Yield to maturity represents the expected amount of return based on the securities par value, coupon rate and maturity of the asset.

Answer 1

Answer:

Correct answer is:

Yield to maturity represents the expected amount of return based on the future timing and size of cash flows, the yield to maturity can change if the future timing and size of cash flows change.

Explanation:

Yield to maturity (YTM) is the return expected from bond if the bond is held till maturity. It depends on Current price, annual cash flows (Coupon rate * Face value), Years to maturity, Cash flow at redemption (Face value).If these variables change YTM will change. As such option A is incorrect.

Option C is incorrect since YTM is not promised amount of return from the issuer of the security.

Option D includes the variables but Option B is most appropriate and the correct option.