Answer-first summary for fast verification
Answer: Greater than 4.2%.
The correct answer is **C** because the realized horizon yield matches the original yield to maturity only if coupon payments are reinvested at the same rate as the original yield to maturity and the bond is sold at a constant-yield price trajectory (no capital gains or losses). Since the reinvestment rate (4.1%) is less than the horizon yield (4.2%), the yield to maturity must be greater than 4.2% to compensate for the lower reinvestment rate. This aligns with the principle that the yield to maturity reflects the total return, including reinvestment income.
Author: LeetQuiz Editorial Team
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A portfolio manager evaluates an option-free bond held to maturity and notes the following:
A
Less than 4.2%.
B
Equal to 4.2%.
C
Greater than 4.2%.
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