SIE practice questionmediumYield Calculations - YTM
A 5% bond matures in 10 years and is selling for 92. What does the yield to maturity (YTM) indicate as compared to current yield?
- AYTM will be higher than current yield✓ Correct answer
- BYTM will be lower than current yield
- CYTM equals current yield
- DYTM is always negative
Explanation
Why A — YTM will be higher than current yield
When a bond is purchased at a discount, YTM is higher than current yield because the investor gains both from interest and price appreciation. The reverse is true at a premium.
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