SIE practice questionhardYield to Maturity
A bond purchased at a discount will have which relationship among its yields?
- AYTM > current yield > coupon rate✓ Correct answer
- BCurrent yield > YTM > coupon rate
- CCoupon rate > YTM > current yield
- DCoupon rate > current yield > YTM
Explanation
Why A — YTM > current yield > coupon rate
For a discount bond, the relationship is: YTM > current yield > coupon rate. This is because YTM accounts for both the annual coupon payments AND the gain from buying at a discount and receiving par at maturity. Current yield only considers the coupon relative to price (which is higher than the coupon rate since the price is below par). For a premium bond, the relationship reverses: coupon rate > current yield > YTM.
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