Find Yield to Worst on a Callable Bond
Identify yield to worst as the lowest yield across maturity and call scenarios.
A callable bond has yield to maturity of 4.90%, yield to first call of 2.70%, and yield to a later call of 3.80%. Which yield should screen the bond conservatively? Yield to worst = the lowest yield across allowed redemption paths, excluding default The common trap is to quote yield to maturity on a premium callable bond and ignore the lower call-path yield. Step 1 List every relevant path: first call, later call, final maturity. Callable bonds have more than one potential endpoint. You cannot judge the return from final maturity alone. Step 2 Write each path's yield: first call…
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