SIE practice questionhardYield Calculations - Yield to Call
A bond purchased at a premium is called early. The investor’s realized yield will most likely be:
- AHigher than the yield to maturity
- BLower than the yield to maturity✓ Correct answer
- CEqual to the coupon rate
- DEqual to the current yield
Explanation
Why B — Lower than the yield to maturity
Early calls on premium bonds lock in a loss on the premium, making the yield to call lower than the yield to maturity. Coupon and current yield are not relevant to call features.
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