If I buy a bond with ten years maturity the yield to maturity will be 1.5513%.Th

Question

If I buy a bond with ten years maturity the yield to maturity will be 1.5513%.The yield to maturity on the bond with two year of maturity is 1.05%. This means that the firm issuing a bond with YTM of 1.05%. Would have to invest to proceeds from the bond sale in the project that yield more than 1.05% over the next year two years in the order to generate a residual for the owner of the company? If I buy a bond with ten years maturity the yield to maturity will be 1.5513%.The yield to maturity on the bond with two year of maturity is 1.05%. This means that the firm issuing a bond with YTM of 1.05%. Would have to invest to proceeds from the bond sale in the project that yield more than 1.05% over the next year two years in the order to generate a residual for the owner of the company?

Explanation / Answer

The provided statement is true.

Yield to maturity (YTM) refers to the returns to the bond holder when the bond is held for its specified lifetime.

So, the firm issuing a bond with YTM of 1.05% would have to invest the proceeds from the bond sale in the project that yield more than 1.05% over the next two years so as to earn profits for the company after paying off the money to the bondholders.

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