Types of Bond Yields
Chapters in this video
- 0:00 Nominal yield: the fixed sticker rate that never moves
- 2:20 Current yield: market price replaces par in the denominator
- 3:28 Yield to maturity: the complete picture with reinvestment assumption
- 4:31 The yield hierarchy teeter-totter: discount versus premium bonds
- 5:37 Yield to call and worst yield: early exits and conservative quotes
- 7:27 Discount yield: money market formula that understates true return
- 8:50 Rapid-fire exam recap: six locked-in takeaways
What this video covers
- Why nominal yield (coupon yield) never changes after issuance, and why only market price reacts to interest rate shifts
- How current yield uses actual market price instead of par, and whether it sits above or below nominal yield for discount versus premium bonds
- What yield to maturity (YTM) includes that current yield ignores: capital gains or losses plus the time value of money
- The reinvestment assumption built into YTM, and why the exam tests it as a standardized comparison tool
- How to rank the yield hierarchy for discount bonds (yield to call greater than yield to maturity greater than current yield greater than nominal yield) and why premium bonds reverse the entire order
- Why premium callable bonds must quote yield to call rather than yield to maturity, and how yield to worst serves as the conservative floor
- Why discount yield (bank discount yield) understates true return: the 360-day year and face value in the denominator inflate the fraction
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