General Securities Sales Supervisor (Series10) Practice Exam

What must be shown on customer confirmations concerning yields?

1. Current yield must be disclosed

2. The coupon rate and yield to maturity/call must be shown

3. Taxable equivalent yield must be disclosed

4. All types of yield must be provided

The correct answer is: The coupon rate and yield to maturity/call must be shown

The requirement for customer confirmations concerning yields is to provide transparency about the investment's potential returns. This is crucial for customers to make informed decisions. The correct choice mandates that both the coupon rate and the yield to maturity or yield to call are disclosed. The coupon rate indicates the fixed annual interest rate paid by the bond issuer based on the bond's face value, while yield to maturity provides insight into the total return an investor can expect if the bond is held until it matures, taking into account the current market price, coupon payments, and the time remaining until maturity. Yield to call serves a similar purpose but applies to callable bonds, illustrating the return if the bond is called before maturity. In contrast, other options may suggest metrics that do not meet the specific regulatory requirements for confirmations. Current yield is a simpler calculation and does not provide the full picture that the coupon rate and yield to maturity/call provides. Taxable equivalent yield is relevant primarily for tax considerations, and while it can be important to some investors, it is not a required disclosure on confirmations. The notion of providing all types of yield could lead to confusion and may not align with the focus on essential information that needs to be conveyed to the customer.