Economics · Financial Markets and Bonds
Which of the following describes the most significant difference between the Current Yield on a Bond and its Yield-to-Maturity (YTM)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Current Yield is the rate used for bond valuation, whereas YTM is used only for comparing bank profitability.
- 2Current Yield ignores the gain or loss on principal repayment at maturity and the time value of money, which YTM fully incorporates.✓
- 3YTM is a statutory measure mandated by the Reserve Bank of India (RBI), while Current Yield is a market measure.
- 4Current Yield is only calculated for Zero Coupon Bonds, while YTM is for coupon-bearing bonds.
Correct answer
Current Yield ignores the gain or loss on principal repayment at maturity and the time value of money, which YTM fully incorporates.
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