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Zorluk: OrtaDebt Securities and Bond Structure

An investor purchases a 10-year corporate bond trading at a premium price of 106.Thebondhasanominalcouponrateof106. The bond has a nominal coupon rate of 5.0\%andiscallablein4yearsatpar( and is callable in 4 years at par ( 100). If market interest rates continue to decline and the issuer calls the bond at the first opportunity, which yield metric will yield the lowest annual return calculation for the investor?

  1. Yield to call (YTC)Cevap
  2. B
    Yield to maturity (YTM)
  3. C
    Current yield (CY)
  4. D
    Nominal yield (NY)

Cevap

Yield to call (YTC) represents the lowest yield calculation when a bond trading at a premium is called early at par.
For a bond trading at a premium, the investor pays more than the principal value that will be redeemed. If the bond is called early, the investor loses the premium over a shorter timeframe, accelerating the loss of capital. Consequently, for a premium bond, the yield to call (YTC) is the lowest yield metric (Nominal Yield > Current Yield > Yield to Maturity > Yield to Call). This is why YTC is considered the 'yield-to-worst' for premium callable bonds.

Adım Adım Çözüm

1
Analyze the bond's purchase price relative to par value.
The bond is purchased at a premium (106vs.106 vs. 100 par value).
Buying at a premium means the investor pays more than the principal amount that will be returned upon redemption.
2
Determine the impact of an early call on premium amortization.
If called in 4 years instead of maturing in 10 years, the premium loss must be written off over 4 years instead of 10.
Faster premium write-off reduces the annualized rate of return.
3
Compare the bond yield hierarchy for a premium bond.
For a bond trading at a premium, Nominal Yield > Current Yield > Yield to Maturity > Yield to Call.
Yield to call reflects the accelerated loss of premium, making it the most conservative (lowest) yield metric.

Anahtar Kavram

Bond Yield Hierarchy and Call Risk for Premium Bonds
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Konular

Debt Securities and Bond Structure

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