The interest rate that equates the present value of payments received from a debt instrument with its value today is the
A)simple interest rate.
B)current yield.
C)yield to maturity.
D)real interest rate.

Question

Quizplus · Accepted Answer

The yield to maturity is the interest rate that equates the present value of payments received from a debt instrument with its value today. It takes into account the time value of money and any premiums or discounts on the instrument. This is the most comprehensive measure of the return on a fixed-income investment. Simple interest rate only takes into account the interest earned on the principal amount, while current yield is a less accurate measure of return that only considers a bond's annual coupon payment divided by its market price. Real interest rate adjusts for inflation and is not applicable to this question.

The Interest Rate That Equates the Present Value of Payments