Types of Bond Yields
Chapters in this video
- 0:00 Nominal yield and the fantasy of par
- 2:18 Current yield and Carla's reality check
- 3:06 Yield to maturity and the reinvestment assumption
- 4:41 The yield hierarchy seesaw
- 5:53 Yield to call, yield to worst, and Issuer Ian
- 7:51 Short-term discount yields and the 360-day year
- 9:01 Rapid-fire exam recap
What this video covers
- Why nominal yield never changes after issuance, no matter what market interest rates do
- How current yield (CY) is calculated from annual coupon divided by current market price, and why it sits above nominal on a discount bond and below it on a premium bond
- What yield to maturity (YTM) actually captures: coupons, capital gain or loss at maturity, and the reinvestment assumption baked into the formula
- The full yield hierarchy for discount bonds (YTC, YTM, CY, NY) and premium bonds (NY, CY, YTM, YTC), and the seesaw memory trick that explains it
- Why callable premium bonds must be quoted at yield to call and callable discount bonds at yield to maturity, and why misquoting is a supervisory violation
- How yield to worst is selected as the lowest of YTM and every possible YTC
- Why short-term discount yields use a 360-day year and always understate the true return on T-bills and commercial paper
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. When you're ready to drill the topic, the full Series 7 course adds adaptive practice questions and spaced-repetition flashcards.