Bond Yield Hierarchy on Discount Bonds (The See-Saw)
When a bond is trading at a DISCOUNT (< $1,000 Par), which of the following correctly orders its yield measures from LOWEST to HIGHEST?
ON A DISCOUNT BOND: Nominal < Current Yield < YTM < YTC. The investor earns the annual coupon PLUS a capital gain as price accretes toward par at maturity (or call).
Complete Analysis & Legal Rationale
On a premium bond, the reverse is true: YTC < YTM < Current Yield < Nominal.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Accurately represents discount bond yield ordering from lowest to highest.
This represents a PREMIUM bond yield hierarchy.
Yields are all equal ONLY when a bond trades at PAR ($1,000).
Current yield is always higher than nominal yield at a discount.
Official Standard: Mandates accurate explanation of yield relationships.