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

Which statement best describes the yield to worst of a callable bond?

Yield to worst is the lowest of the yield to maturity and the yields to each possible call date. It is the conservative yield measure because it assumes the issuer exercises the call option, or lets the bond run to maturity, in whichever way is least favorable to the investor.

  1. AThe lowest of the yield to maturity and the yields to each call dateCorrect
  2. BThe yield to maturity less the option cost of the call feature
  3. CThe yield earned if the issuer calls the bond at the highest call price

Explanation

Yield to worst is the lowest of the yield to maturity and the yields to every possible call date, since the investor should assume the least favorable outcome. It is not a spread adjustment and is not tied to the highest call price.

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