Economics · Financial Markets

Assertion (A): The calculation of the Yield to Maturity (YTM) for a bond is considered a superior measure of return compared to the current yield because it accounts for the time value of money, the timing of all future cash flows (including periodic interest and the final principal repayment), and the potential capital gain or loss arising from the difference between the purchase price and par value. Reason (R): The Current Yield is a simplistic calculation that only considers the annual coupon income relative to the current market price, thereby failing to recognize that a bond purchased at a discount will provide an additional return at maturity, or that a bond purchased at a premium will result in a capital loss upon redemption. Choose the correct option: