🏦LTB
← SIE: Debt Securities
SIE practice questionhardYield to Call

Compared to yield to maturity, yield to call on a premium bond will typically be:

  1. AHigher, because the bondholder receives par sooner
  2. BThe same, because both measure total return
  3. CLower, because the call accelerates the premium loss✓ Correct answer
  4. DIrrelevant, because premium bonds are never called
Explanation

Why C — Lower, because the call accelerates the premium loss

For a premium bond, yield to call (YTC) is lower than yield to maturity (YTM). When a bond is purchased above par and called early, the investor must absorb the loss back to par over a shorter period, reducing the overall yield. This is why investors in callable premium bonds use the lower of YTM or YTC as the more conservative measure. Premium bonds are more likely to be called because the issuer can refinance at a lower rate. Answer D is wrong — premium bonds are frequently called.

Turn it into reps

Reading one answer is not the same as being ready

Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.

Practice SIE freeSIE exam guide
Related Debt Securities questions