medium · Debt Capital Markets pricing-yields-curve
What is the primary reason that the Yield to Maturity (YTM) of a premium bond is lower than its Current Yield?
- Current yield disregards the premium paid above par at purchase.
- The investor faces a capital loss as the bond's price falls toward par.
- The reinvestment of coupons is assumed to occur at a higher prevailing rate.
- The investor receives lower coupon payments than comparable bonds in the market.
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