What is the difference between a 'nominal yield' and a 'yield to call' in muni ads?

• A. Nominal yield includes potential early redemption; yield to call is the coupon rate.
• B. Nominal yield is the coupon rate; yield to call reflects potential early redemption; ads must clearly disclose assumptions.
• C. Nominal yield reflects long-term payout; yield to call ignores call provisions.
• D. Nominal yield is the yield on a callable security only after call; yield to call is the yield on a noncallable issue.

Answer: (B)

Nominal yield is simply the coupon rate stated on the bond—the fixed percent of par paid as interest, regardless of price or call features. Yield to call, on the other hand, is the yield calculated if the issuer exercises the earliest call provision, so it reflects potential early redemption and uses the call price (often par plus a premium) and the time to the call. In muni ads, if a yield to call is shown, the disclosures must spell out the assumptions used (the first call date and the call price). So the correct explanation is that the nominal yield is the coupon rate, while the yield to call factors in potential early redemption with required disclosure of the call assumptions.