Can sombody explain this The yield to call is a less conservative yield measure than the yield to maturity whenever the price of a callable bond is quoted at a value: A) equal to or greater than par value plus one year’s interst. B) equal to par value. C) more than par. D) equal to par value less one year’s interest. Your answer: C was incorrect. The correct answer was D) equal to par value less one year’s interest. The more conservative yield measure is the one that results in a lower yield. The YTM on a discount bond will always be less than its yield to call.
Unless you are an english major, you are going to find this question very hard. Read the question as if “less” word was not there, and before selecting your answer, invert the True to false and vice versa. a) True - because yield to call is conservative when bond trading at premium b) Leave it for now (can’t determine) c) same as a, (at this point you eliminate choices a and c) d) now D is essential same as B except more discount and lower yield cuz you are losing interest. now go back and think, b is less conservative than a and c, and d is even more less conservative than b. hence d is the right answer.
A can’t be the answer just because it has 2 possibilities (OR keyword), and since A can’t be, C can’t be either, because C is a subset of A, especially since the question doesn’t include “most likely” So just by some clever thinking you’ve got yourself 50% chance to be correct on this question.
Additionally notice B is a subset of A, hence a and b both can’t be the answer. you are only left with D. I doubt you’ll see these sort of easy questions on exams what you can 100% get by guessing.