Question

An invesetor purchase a fixed-coupon bond at a time when the bond's yield to maturity was

Answer 1

A bond's coupon rate is the amount of interest income earned on the bond each year based on its face value. Its yield to maturity (YTM) is the estimated rate of return assuming that it is held until its maturity date. Thus, yield to maturity includes the coupon rate within its calculation.

Generally, a bond investor is more likely to make a decision based on an instrument's yield to maturity than on its coupon rate.