XYZ bond is trading for 103. The bond's call price is 105. Trades of XYZ bond will most likely be based on which of the following:

Question

Quizplus · Accepted Answer

When a bond is trading above its par value (at a premium), as indicated by a trading price of 103, and it is not close to its call date or the call price is not significantly influencing current trading decisions (since the call price is only slightly above the trading price), investors are more likely to focus on the bond's yield to maturity (YTM). YTM considers the total returns anticipated if the bond is held until it matures, incorporating both the bond's coupon payments and any capital gain or loss that would be realized if the bond is held to maturity. This makes it a more comprehensive measure of the bond's performance than the current yield or coupon rate, and more relevant than the yield to call when the call feature is not the primary concern.

XYZ Bond Is Trading for 103