SIE (Training Consultants v3.5, 2025): Ch. 2 Debt Securities, Sec. 2 - Bond Yields

Nominal Yield

The coupon or interest rate stated on the face of the bond.

Current Yield

Annual interest divided by the bond’s market price.

Yield to Maturity (YTM)

Long-term annual yield considering purchase price, redemption value, coupon, and time to maturity.

Inverse Relationship (Rates vs. Prices)

As interest rates rise, bond prices fall; as rates fall, bond prices rise.

Basis Point

1/100th of 1%, equal to 0.01% or 0.0001 of par ($10 on a $1,000 bond).

Bond at Discount Yield

YTM > Coupon Rate.

Bond at Par Yield

YTM = Coupon Rate.

Bond at Premium Yield

YTM < Coupon Rate.

Duration

Measure of a bond’s sensitivity to interest rate changes (e.g., duration of 5 → price moves 5% for every 1% change in rates).

Short-Term Bonds

React the quickest to interest rate changes; safer and more stable.

Long-Term Bonds

React the greatest to interest rate changes; carry more risk.

“M” in Bond Quotes

Roman numeral for 1,000; “5M bonds” = $5,000 worth of bonds.

Bond Quote Example “6s of 28 @ 109”

6% coupon, maturity 2028, priced at $1,090.