Yield Measures
Ways of expressing a bond's return: nominal yield (the fixed coupon), current yield (annual interest ÷ market price), yield to maturity (total return if held to maturity), and yield to call.
The classic item gives a coupon and a price and asks which yield is highest or lowest, or asks you to rank all four. The “tell” is the price relative to par: spot discount vs. premium first, then apply the ordering — you rarely compute anything. A second pattern feeds you the dollar coupon and price and wants current yield; the trap is grabbing the nominal figure, which divides by par, not market price. Note that “stated,” “coupon,” and “nominal” all name the same fixed rate set in the indenture.
The common miss is reversing the seesaw: on a premium bond YTC is the lowest yield because the issuer (refinancing as rates fall) redeems early, so you absorb the premium loss over a shorter horizon. Don’t confuse this with the inverse price–yield rule (rates up, prices down) — that’s about price movement, while yield measures rank one bond at a single price. Memory hook: the four yields fan out around the bond’s YTM, and an early call drags the worst-case yield toward the premium end.
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