The SIE bond yields section is one where you can pick up a few easy points. In today’s post we cover why and how you should approach this part of the exam.
SIE Bond Yields
There are four important yields on the SIE exam. Nominal yield (which is the same as the coupon), current yield, yield to maturity, and yield to call.
Most important, they are always in this order. The only catch is that you have to know whether they are ascending from the nominal yield, or descending from the nominal yield.
One easy way to approach these questions is to know that when bond prices decrease, yields will increase. And, when bond prices increase yields will decrease.
Knowing this simple relationship will help you understand when the four yields, starting with nominal yield, will be in ascending order or descending order.
No Math Required
The good news is you won’t need to do math. While there are certainly questions where your understanding of the math will get you a point, such as calculating current yields, it is not necessary for most of these questions. The general idea is to know what directions the yields (or prices) are heading. With this basic approach your halfway home.
Sometimes the question will tell you that the price of a bond is above, or under, par and then you need to figure out the order of the yields. Other times, the question will start with the yields above or below the coupon, and then you need to figure out where the price should be (a discount or premium).
Overall, the reason why we highlight this section as being important is because once you get it, these become free points. With only 75 questions that count towards your score, every point matters. If you need any help, you know where to find us. Our SIE video course should help here. Feel free to reach out, and good luck with your exam!