SIE cheat sheetSection 2: Understanding Products & Risks (44%)
Bond Yields & Price Relationships
Free and printable — use your browser's print function for a clean copy. Updated 2026-07-05.
Yield Types (from lowest to highest for a PREMIUM bond)
- Nominal Yield (Coupon Rate): Stated rate on the bond (never changes)
- Current Yield: Annual coupon / Market price
- Yield to Maturity (YTM): Total return if held to maturity (includes price appreciation/depreciation)
- Yield to Call (YTC): Total return if called early (shorter time = higher annualized yield for discount bonds)
For PREMIUM bonds (price > par): NY > CY > YTM > YTC
For DISCOUNT bonds (price < par): NY < CY < YTM < YTC
For PAR bonds: All yields are EQUAL
Price/Yield Relationship
- Bond prices and yields move in OPPOSITE directions (inverse relationship)
- When interest rates RISE → bond prices FALL
- When interest rates FALL → bond prices RISE
- Longer maturity = MORE sensitive to rate changes (higher duration)
Bond Pricing Concepts
- Premium bond: price > par (coupon rate > market rate)
- Discount bond: price < par (coupon rate < market rate)
- Par bond: price = par (coupon rate = market rate)
- Accrued interest: buyer pays seller for interest earned but not yet paid
Duration
- Measures bond price sensitivity to interest rate changes
- Higher duration = more price volatility
- Zero-coupon bonds have the HIGHEST duration (duration = maturity)
- Higher coupon = lower duration (cash flows come sooner)
Key facts to memorize
- Premium: NY > CY > YTM > YTC
- Discount: NY < CY < YTM < YTC
- Par: all yields equal
- Prices and yields move inversely
- Longer maturity = greater interest rate sensitivity
- Current yield = annual coupon / market price
- Zero-coupon bonds have highest duration
Mnemonics that stick
- "Premium bond yields go DOWN the ladder: NY > CY > YTM > YTC"
- "Discount bond yields go UP the ladder: NY < CY < YTM < YTC"
- "Price and yield are on a SEESAW — when one goes up, the other goes down"
- "Long bonds MOVE more" — longer maturity = greater price sensitivity
- "CY = Coupon / Cost (current market price)"
Exam traps
- Nominal yield NEVER changes — it's the stated coupon rate printed on the bond
- Current yield only considers coupon and price — it ignores time to maturity
- YTM is the MOST comprehensive yield measure (considers coupon, price, AND time)
- For a premium bond, YTC < YTM because the bond is called early at a LOSS to the investor
- Zero-coupon bonds have the HIGHEST duration and are MOST sensitive to rate changes
- Bond prices move INVERSELY to interest rates — this is tested heavily
Spot an error on this sheet? Tell us — we fix these fast.
Free practice questions
Drill bond yields & price relationships questions
Every SIE question below is free with the answer and a full explanation — no signup to read them.
Investment Companies & Packaged Products
308 questions
Debt Securities
237 questions
More SIE cheat sheets