Canadian Securities Course (CSC) Level 1 Practice Exam

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What is the formula for Yield to Maturity (YTM)?

[(Interest income ± Price change per compounding period) / (Purchase price + Par Value) / 2] x 100
[(Annual Cash flow / Current market price) x 100
Annual Cash flow / Current market price
Annual Cash flow x Current market price

The correct answer is: [(Interest income ± Price change per compounding period) / (Purchase price + Par Value) / 2] x 100

The correct formula for Yield to Maturity (YTM) is given by option A: [(Interest income ± Price change per compounding period) / (Purchase price + Par Value) / 2] x 100. YTM is the total return anticipated on a bond if the bond is held until it matures. It takes into account the current market price, par value, coupon interest rate, and time to maturity of the bond. Options B, C, and D do not represent the correct formula for YTM. Option B is a simplified version of the dividend yield formula. Option C is simply the calculation for the current yield of a bond. Option D is not a recognized formula for YTM calculation. Therefore, option A is the correct formula for calculating Yield to Maturity (YTM).