SIE Exam Question 354: Answer and Explanation

Question: 354

When the market price of a bond is lower than its par value,

• A. its current yield is lower than its nominal yield.
• B. its nominal yield is higher than its YTM.
• C. its nominal yield and its YTM are the same.
• D. its YTM is higher than its current yield.

Correct Answer: D

Explanation:

D - When a bond is trading at a discount (market price lower than par value), the YTC will be the highest yield, then YTM, then CY, and the nominal yield the lowest yield.