In which of the following situations would the yield to worst for a certain bond be that bond's yield to call?
I. The bond's coupon payments are high relative to market yields.
II. The bond price is at a discount.
III. The likelihood of the bond being called is high.

Question

Quizplus · Accepted Answer

Yield to call is the yield an investor would receive if they hold a callable bond until the call date. If the likelihood of the bond being called is high, then the yield to call would be the yield to worst because it is the lowest possible yield the investor would receive. Additionally, if the bond has a high coupon relative to market yields, this could increase the probability of the bond being called, reinforcing the idea that yield to worst would be the same as yield to call. The bond price being at a discount does not necessarily indicate that yield to worst would be the same as yield to call.

In Which of the Following Situations Would the Yield to Worst