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Zorluk: OrtaDebt Securities and Bond Structure

An investor purchases a 10-year corporate bond in the secondary market at a price of 920.Thebondhasaparvalueof920. The bond has a par value of 1,000 and a stated annual coupon rate of 4.0%. Which of the following correctly ranks the bond's yields from lowest to highest?

  1. Nominal yield, current yield, yield to maturity, yield to callCevap
  2. B
    Yield to call, yield to maturity, current yield, nominal yield
  3. C
    Current yield, nominal yield, yield to maturity, yield to call
  4. D
    Nominal yield, yield to maturity, current yield, yield to call

Cevap

For a bond purchased at a discount, the yields ranked from lowest to highest are nominal yield, current yield, yield to maturity, and yield to call.
When a bond trades at a discount (below par value), its market price is less than par while coupon payments remain fixed. This makes current yield higher than the nominal yield (coupon rate). In addition, since the investor receives full par value at maturity, the yield to maturity includes capital appreciation, making it higher than current yield. Finally, if the bond is called early at par, that capital gain is accelerated over a shorter holding period, making yield to call the highest yield measure. Thus, from lowest to highest, the yields rank: nominal yield, current yield, yield to maturity, and yield to call.

Adım Adım Çözüm

1
Determine whether the bond is trading at a discount, par, or premium.
The purchase price of 920isbelowthe920 is below the 1,000 par value, placing the bond at a discount.
Comparing market price to principal (par) establishes the yield relationships.
2
Apply the discount bond yield hierarchy relationship.
Nominal Yield < Current Yield < Yield to Maturity < Yield to Call.
When a bond is bought at a discount, an investor earns fixed interest payments plus an annualized capital gain toward par, driving overall yields above the stated coupon rate.

Anahtar Kavram

Yield Hierarchy for Discount Bonds
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Konular

Debt Securities and Bond Structure

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