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 Let's analyze each statement: **A. TRUE**: When a bond sells at a premium (price > par), the YTM is less than the coupon rate. This is because investors are willing to pay more than face value, accepting a lower yield. **B. TRUE**: When a bond sells at a discount (price < par), the YTM is greater than the coupon rate. The discount provides additional return to compensate for the lower price. **C. TRUE**: For zero-coupon bonds, the YTM equals the spot rate for that maturity since there are no intermediate coupon payments to reinvest. **D. FALSE (The EXCEPT statement)**: This is not necessarily true. A bond with a higher YTM may have higher credit risk, different cash flow patterns, or other characteristics that make it riskier. The YTM alone doesn't determine investment superiority - risk must also be considered. Two bonds with identical maturities and term structure could have different YTMs due to credit quality differences, making the higher-YTM bond potentially riskier, not necessarily superior. Therefore, statement D is the exception as it's not necessarily true about YTM.

Author: LeetQuiz .