Alrite, in that case I want to dig a deep further and understand what the differences are. CFAI does not seem to have definitions for nominal yield and coupon yield, so I am having to depend on other sources. For the 2009 version of Schweser for this same question, the answer states that ‘nominal yield and coupon yield’ are interchangeable, and I quote: “The nominal yield (another term for the coupon yield) is less than the yield to maturity for a discount bond.” Reference: Book1 - Exam 2 Afternoon #104 Other lesser reliable sources such as Investopedia states that ‘nominal yield and coupon rate’ are one in the same - which I think you agree with. http://www.investopedia.com/terms/n/nominalyield.asp Could you elaborate a bit more on why you think they are not the same for bonds not selling at par?
For Premium bonds: YTM is LOWEST of all Yields/Rates For Discount bonds: YTM is GREATEST of all Yields/Rates Just remember these two points and you won’t be having any difficulty in solving such type of questions.
Thanks SpyAli - I feel comfortable differentiating between YTM, Coupon Rate and Current Yield. My query is about the other unconventional terms which have been thrown into the question: Nominal Yield and Coupon Yield. My finding is: “Coupon rate = Nominal yield = Coupon Yield”. Have a read on the previous 5 posts above for details. Are you able to confirm?
Yup i did read the whole thread Trekker. My post was not for you specifically but for the OP. As for your query whether the “Coupon rate = Nominal yield = Coupon Yield”? Yes, I “believe” they are all same, equal and interchangeable no matter whether the bond is selling at par, premium or discount. However, Current yield is different. It varies with the market price. It can only be equal to Cupon rate/Nominal Yield/Coupon Yield when the bond is at selling “Par” i.e. when yield curve is flat.
Great, thanks!