Can someon please explain the following statment: discount bond; current yield < YTM and nominal yield > YTM I know coupon yield < YTM for discount bonds but how does the above fit into it all?
remember these relatioships: par:current yield=coupon=YTM discount: currentcoupon>YTM I was under the impression that the nomial yield would be the coupon, in that case the relationships in your above statement wouldn’t hold (the nominal>YTM) could someone verify nominal on bonds?
nominal yield is the coupon rate for bonds.
thats what I thought
Nominal Yield = Coupon Rate But you have the relationships mixed up. The current yield is between the coupon and the YTM.
I agree with Sir.
poop, thanks for the correction guys
Here’s something that has always helped me and something I posted last week sometime: From Series 7 land awhile back, I was taught something I have ALWAYS remembered: P N C Y (Pronounced “Pinkie”) P = Price, N = Nominal Yield (Coupon), C = Current Yield, and Y = YTM P N C Y This would be a premium bond: N > C > Y Y C N P This would be a discount bond: N < C < Y
The way I think of it is as follows If coupon is less than the YTM, then investor is getting paid less, but we know his return is YTM, so the only way he’ll get YTM is if has capital gains. so the bond trades at discount. And the viceversa logic for premium. You can also think of premium as, investor pay a premium to get higher coupon than YTM!
Or you can draw the see saw and throw current yld in the middle of nominal and YTM. LOVE the see saw.