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Answer: The yield to second call.
The yield to worst is the lowest among the sequence of yields to call and the yield to maturity. For this bond: 1. **Yield to Maturity (YTM)**: Calculated as approximately 2.7% using the bond's cash flows over its full term. 2. **Yield to First Call**: Calculated as approximately 2.9% if the bond is called at year 2. 3. **Yield to Second Call**: Calculated as approximately 2.6% if the bond is called at year 3. Since the yield to second call (2.6%) is the lowest, it represents the yield to worst. This aligns with the CFA concept of identifying the most conservative yield measure for callable bonds.
Author: LeetQuiz Editorial Team
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An analyst evaluates a callable bond with the following characteristics: current price of 105 per 100 of par value, 4 years to maturity, a 4% annual coupon rate, and call prices of 103 at year 2 and 101 at year 3. The bond's yield to worst is most likely:
A
The yield to maturity.
B
The yield to first call.
C
The yield to second call.