Types of Bond Yields
Chapters in this video
- 0:00 Nominal yield: the fixed rate that never changes
- 2:55 Current yield and the discount or premium split
- 3:29 Yield to maturity: total return with reinvestment assumption
- 4:29 The yield hierarchy for discount and premium bonds
- 5:10 Yield to call, premium bonds, and the disclosure trap
- 6:31 Yield to worst: the lowest possible yield
- 6:55 Money market discount yield and the 360-day year
- 7:52 Rapid-fire exam recap
What this video covers
- Why nominal yield is fixed at issuance and never reacts to interest rate changes, no matter how dramatic the market moves
- How current yield (CY) shifts above or below nominal yield based on whether the bond trades at a discount or premium
- What yield to maturity (YTM) includes that current yield ignores: capital gains, losses, and the time value of money
- The reinvestment assumption baked into YTM and why it matters on test day
- How the yield hierarchy inverts between discount bonds (YTC highest) and premium bonds (YTC lowest), and the capital gain or loss logic driving each ranking
- When yield to call (YTC) must be quoted instead of YTM, and why premium callable bonds always trigger this conservative disclosure rule
- What yield to worst (YTW) represents and how to identify it as simply the lowest yield among all maturity and call scenarios
- Why money market discount yield uses a 360-day year and always understates the true return by dividing by face value instead of purchase price
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