Final answer:
The rate of return that investors require for owning a bond, which accounts for all payments including coupons and any potential gains or losses, is known as the yield to maturity. Therefore correct option is (4)
Step-by-step explanation:
The rate of return required by investors in the market for owning a bond is called the yield to maturity. This is a comprehensive measure that reflects the total returns a bond is expected to generate if held until its maturity date. It includes all coupon payments and any capital gain or loss that will be realized by the investor, and it adjusts to the bond's current market price.
The yield to maturity is different from the coupon rate, which is the annual interest rate paid by the bond's issuer and does not change during the life of the bond. Changes in market interest rates can affect the bond's selling price because the fixed coupon payments may become more or less desirable relative to current rates. So, if market interest rates rise, existing bonds with lower interest rates sell for less than face value, known as a discount. Conversely, if interest rates fall, bonds with higher interest rates become more valuable and sell for more than face value, at a premium.