Discount, Par & Premium Yield Order — Q&A

Coupon (4%) < Current yield (5%) < YTM (6.7%) < YTC (8.9%). This order is consistent for every discount bond.

YTC (1.9%) < YTM (2.9%) < Current yield (3.6%) < Coupon (4%). Premium ordering is the exact mirror image of the discount ordering.

All yields equal the coupon. No gain or loss from purchase price — return comes only from coupon payments. Keep it simple on exam questions about par bonds.

Current yield, YTM, and YTC are all higher than the coupon.

Current yield, YTM, and YTC are all lower than the coupon.

Relationships (higher/lower ordering) are higher priority than computing every yield from scratch. NASAA emphasizes whether one yield exceeds another; current yield is the most likely calculation required.

The investor earns the discount over fewer years if called early — the same dollar gain is annualized over a shorter period, boosting the overall return.

The investor loses the premium over fewer years if called early — the same dollar loss is spread over less time, depressing the annualized return.

“CYM Call” — Current Yield, yield to Maturity, yield to Call (in ascending order on the discount side of the see-saw).

Upward — because the bond trades above par. The yield order on the premium side runs from lowest (YTC) at the bottom to highest (coupon) at the top.