If a municipal securities firm wishes to advertise a given percentage yield on a security, the advertisement: A must disclose whether the yield is the coupon rate or yield to maturity B must disclose whether the yield is the coupon rate or current yield C must show the dealer's inventory position for that bond D must show how the yield was computed

• A. must disclose whether the yield is the coupon rate or yield to maturity
• B. must disclose whether the yield is the coupon rate or current yield
• C. must show the dealer's inventory position for that bond
• D. must show how the yield was computed

Answer: (A)

When a municipal securities firm advertises a percentage yield, the basis of that yield must be stated so investors understand what is being quoted. If the ad shows a percentage as the yield, it should clearly indicate whether that percentage is the coupon rate or the yield to maturity. The coupon rate is the issuer’s fixed annual interest as a percent of par and doesn’t necessarily reflect the investor’s actual return unless the bond is bought at par and held to maturity. Yield to maturity, however, conveys the total expected return if the bond is held to maturity, accounting for price paid and reinvestment of coupons. Without labeling the basis, the ad can mislead. Therefore, the correct requirement is to disclose whether the yield is the coupon rate or yield to maturity. Other details like inventory position or the exact computation method aren’t the primary disclosure in this scenario, though other yield bases (like current yield or yield to call) may be relevant in different contexts.