标题: Difference between Yield - Exam question [打印本页] 作者: slackeranalyst 时间: 2011-7-11 18:44 标题: Difference between Yield - Exam question
Can someone answer and explain the difference between these yield measures/rates? Thanks!!
Which of the following relationships is least accurate?
A. Premium bond: Coupon rate> YTM; Nominal Yield > Current Yield.
B. Premium bond: Nominal yield > Current Yield; current yield > YTM
C. Discount bond: Coupon rate < YTM; Nominal yield < YTM
D. Discount bond: Coupon Yield < YTM; Nominal Yield > YTM
Is there a difference between rate and yield? How is nominal yield different from Coupon yield?
I understand the coupon rate is the percentage of the bond you are going receive in payments. YTM is the yield based on mkt interest rates (the IRR of the bond) but I don't understand the other rates and how they move with the yield curve. Thanks Peeps!作者: Finalnub 时间: 2011-7-11 18:44
B. because current yield( current coupon/current price in this case above par value) is going to be less than YTM.作者: chetan86 时间: 2011-7-11 18:44
I said B too the answer is D tho. I hate getting easy questions like this wrong作者: draz 时间: 2011-7-11 18:44
It's because your current yield need to be in the middle of the coupon and YTM for a discount bond
and Coupon is always less than YTM for a discount作者: Beatnik 时间: 2011-7-11 18:44
okay so Premium bond - Nominal Yield is on top, CY is in middle, YTM is on bottom.
Discount bond - YTM is on top, CY is in middle, Nominal yield is on bottom?作者: bapswarrior 时间: 2011-7-11 18:44
What is Nominal Yield?作者: btcapital 时间: 2011-7-11 18:44
Nominal yield = coupon rate. It has nothing to do with market price or require any calculation. A 6% bond has a nominal yield of 6%.
YTM = discount rate that equates the cash flows to the market price of the bond. It is equal to the coupon rate if and only if the bond is selling at par (KNOW THIS).
Current Yield = coupon/market price of the bond.
Edit: Rate and Yield are mostly interchangeable so nominal yield = nominal rate. I've never heard anyone say "rate to maturity" but it wouldn't surprise me if they talked that way in New Zealand or something.
Edited 1 time(s). Last edit at Wednesday, November 12, 2008 at 08:24AM by JoeyDVivre.作者: smartpants 时间: 2011-7-11 18:44
T
F - CR>YTM
T
F - CR>CY>YTM for premium
I'm an expert now lol thanks guys
It's pretty easy, if the market is offering a higher rate (YTM=9%) then the bond you currently own (CR of your bond 5%), who is going to want to buy your bond when they can buy the 9% mkt rate bond? No one, so inorder to sell your bond, you have to offer it a lower price to entice people to buy it, a discount.
That's why
Discount Bond = YYM>CY>CR
and CY is always in the middle of the 3.
Is that all correct?作者: spartanag07 时间: 2011-7-11 18:44
So back to your original question, how could the answer be D? Shouldn't it be C,
Nominal < YTM?作者: cchang 时间: 2011-7-11 18:44
The question isn't that difficult - I think it looks that way due to a few interrelated terms.
In my view, Coupon rate = Nominal yield = Coupon Yield.
Can someone please confirm?作者: rkapoor 时间: 2011-7-11 18:44
The coupon rate, nominal yield, and current yield would only be the same if________作者: bluejazzy 时间: 2011-7-11 18:44
Thanks Joey. Agreed that these would all be equal if the term structure of interest rates are flat. However, the question refers to 'coupon yield'.
"Coupon rate = Nominal yield = Coupon Yield" should be true since they all use: annual coupon / face value
Is this correct?作者: shootingstar 时间: 2011-7-11 18:44
Nope. It's the same if the bond is selling for par.作者: thisisbrianly 时间: 2011-7-11 18:44
Thanks SpyAli - I feel comfortable differentiating between YTM, Coupon Rate and Current Yield.
My query is about the other unconventional terms which have been thrown into the question: Nominal Yield and Coupon Yield.
My finding is: "Coupon rate = Nominal yield = Coupon Yield". Have a read on the previous 5 posts above for details.
Are you able to confirm?作者: lc26mizzou 时间: 2011-7-11 18:44
