Answer: If the same term structure of spot rates applies to two bonds with identical maturities, the bond with the higher yield (YTM) is a superior investment

## Explanation **Correct Answer: D** **Analysis of Each Statement:** - **Option A**: **TRUE**. When a bond sells at a premium (price > par), the YTM must be less than the coupon rate because the investor pays more than face value but receives the same coupon payments. - **Option B**: **TRUE**. When a bond sells at a discount (price < par), the YTM must be greater than the coupon rate because the investor pays less than face value but receives the same coupon payments. - **Option C**: **TRUE**. For zero-coupon bonds, the YTM equals the spot rate for that maturity because there are no intermediate cash flows to reinvest. - **Option D**: **FALSE (EXCEPT)**. A higher YTM does not necessarily mean a superior investment. The YTM calculation assumes all coupon payments can be reinvested at the YTM rate, which may not be realistic. Additionally, bonds with different coupon structures can have the same YTM but different risk characteristics. A bond with higher YTM might have higher credit risk or other unfavorable features. **Key Concept**: YTM is a useful measure but has limitations. It assumes reinvestment at the same rate and doesn't account for differences in risk, liquidity, or other factors that affect investment quality.

Author: LeetQuiz Editorial Team