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CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Fixed-Rate Bonds

A callable bond with a call price of 100 trades at a substantial discount to par. The yield to worst is most likely equal to the:

The yield to worst is most likely the yield to maturity. When a bond trades at a discount to its call price, an early call would give the investor a faster gain, so yields to call are higher than the yield to maturity. The lowest yield is the yield to maturity.

  1. Ayield to maturityCorrect
  2. Bcurrent yield
  3. Cyield to first call date

Explanation

For a bond priced below the call price, calling it at 100 would give the investor a quick capital gain, so the yield to call exceeds the yield to maturity. The lowest yield is therefore the yield to maturity, which makes it the yield to worst. Current yield is not a yield to worst measure.

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