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SIE: Debt Securities
SIE practice questionmediumYield to call

A bond is purchased at a premium and is called at the first call date. Compared to the yield to maturity, the yield to call will be:

  1. ADependent on the coupon payment frequency
  2. BHigher
  3. CThe same
  4. DLower✓ Correct answer
Explanation

Why DLower

When a premium bond is called before maturity, the remaining premium is lost faster, lowering the yield to call versus yield to maturity. Payment frequency does not affect this relationship.

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