SIE (Securities Industry Essentials) Practice Exam

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If a bond is purchased at $910 (a discount), which of the following has the most advantageous yield?

Yield to Maturity
Current Yield
Yield to Call
Nominal Yield

The correct answer is: Yield to Call

A bond that is purchased at a discount means that the initial investment is lower than the face value of the bond. In this scenario, option C, the Yield to Call, would have the most advantageous yield. This is because the Yield to Call takes into account the discounted price and the potential early redemption of the bond. Option A, Yield to Maturity, would not be the most advantageous yield in this case because it does not factor in the discount and assumes the bond will be redeemed at maturity. Option B, Current Yield, is calculated by dividing the annual interest by the current market price and does not consider the discount, thus not the most advantageous yield. Option D, Nominal Yield, is simply the annual interest rate stated on the bond and does not factor in the discount. Therefore, option C would be the most advantageous yield in this scenario.