Economics · Financial Markets

Consider the following statements regarding the Yield to Maturity (YTM) of a bond: Statement 1: The YTM is mathematically defined as the internal rate of return earned by an investor who buys the bond at the observed market price, assuming the bond is held until its scheduled maturity date and all payments are received precisely on time. Statement 2: A fundamental assumption underlying the traditional YTM calculation is that the investor is able to reinvest every periodic coupon payment received into the market at an interest rate that is exactly equal to the calculated YTM itself. Statement 3: When a bond is trading in the secondary market at a premium, the YTM will consistently be lower than both the stated coupon rate and the current yield. Identify the correct interpretation of the statements provided above: