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SIE: Debt Securities
SIE practice questionmediumYield to maturity

An investor buys a 5% coupon bond for $950. If held to maturity, what will be true about the yield to maturity (YTM)?

  1. AYTM depends only on accrued interest
  2. BYTM is equal to the coupon rate
  3. CYTM is less than the coupon rate
  4. DYTM is greater than the coupon rate✓ Correct answer
Explanation

Why DYTM is greater than the coupon rate

Buying below par means the YTM is higher than the coupon rate. YTM equals the coupon rate only at par, and accrued interest is just a settlement adjustment.

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