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Question:
A coupon-bearing bond was purchased at par. If the bond were held until maturity and interest rates fell during the period, the actual ex‐post return would most likely be:
A
Lower than the YTM at time of purchase.
explanation
The fall in interest rates during the term of the bond leads to a lower yield on reinvestment of income than the YTM calculated upon purchase. Therefore, the actual return on the bond would be lower than the YTM.
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