Question

Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? a. The probability of default is zero. b. The bond is callable.

Answer 1

a. The probability of default is zero.

Step-by-step explanation:

A bond is a fixed income security that investors can buy. It can either be a zero-coupon bond which does not pay fixed coupons or a coupon-paying bond which pays coupons . When a bond is held to maturity by the bondholder, YTM(Yield to Maturity) will be the rate of return on an assumption that the probability of defaulting in payments is zero