A company issues a callable (at par)10-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $104 per $100 of face value. What is the yield to worst of this bond when it is released?

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The yield to worst (YTW) for a callable bond is the lowest possible yield the bond can provide, considering all potential call dates. Since the bond can be called at par one year after release, the worst-case scenario for an investor is that the bond is called at the earliest possible date, which would result in the lowest yield. The bond is issued at $104 and can be called at $100 after one year, with a 6% coupon payment. The yield to worst, in this case, is calculated considering the bond is called at the earliest opportunity, which results in a yield lower than if the bond were held to maturity. The calculation for YTW in this scenario involves finding the yield that equates the bond's price (including the received coupon) to its call value at the earliest call date. This yield is 1.92%, reflecting the bond's return if it is called at the earliest opportunity.

A Company Issues a Callable (At Par)10-Year, 6% Coupon Bond