SIE (Securities Industry Essentials) Practice Exam

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The yield to call of a bond is calculated by assuming the bond will be redeemed on:

  1. the maturity date

  2. the call date that results in the lowest yield

  3. any call date

  4. the call date closest to the current date

The correct answer is: the call date that results in the lowest yield

The yield to call of a bond is the rate of return expected by investors if the bond is redeemed or called back by the issuer before its maturity date. Of the given options, B is the best choice because it provides the lowest yield for the bond's call date, which is a more conservative estimate than assuming the bond will be called on any date (option C) or the call date closest to the current date (option D). Option A, the maturity date, is incorrect because the yield to call only applies if the bond is actually called back before its maturity date. Therefore, assuming the bond will be redeemed on the maturity date would not provide an accurate calculation of the yield to call.

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