Types of Yields
Chapters in this video
- 0:00 Why bond yields trip up Series 7 candidates
- 1:31 Nominal, current, and yield to maturity
- 2:16 The 360-day discount yield trap
- 2:46 Premium dips, discount climbs ranking
- 4:03 Yield to worst and the callable bond issuer
- 5:31 Inverse price-yield and zero-coupon volatility
- 7:19 Rapid-fire exam recap
What this video covers
- The difference between nominal yield (coupon yield), current yield, and yield to maturity (YTM), and what each one actually measures
- Why discount yield on T-bills and commercial paper uses a 360-day year, not 365
- The premium bond ranking (nominal greater than current greater than YTM greater than yield to call) and the mirror-image discount bond ranking
- Why yield to call (YTC) is the lowest yield on a premium bond and the highest yield on a discount bond
- How yield to worst works on callable bonds: YTC for premium callables, YTM for discount callables, and why the issuer's refinancing incentive drives the answer
- The inverse relationship between bond prices and market interest rates, and why rising rates push prices down
- Why long maturity plus low coupon equals maximum price sensitivity, and why zero-coupon bonds are the most volatile of all
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