What is called "yield-to-worst" in the opening post is the return to maturity rather than the yield-to-worst.
Simplifying the example, suppose the bond paid interest once a year and was bought just after the interest payment one year before maturity, so no accrued interest would have been paid when buying. $10,300 would be received at maturity (principal plus interest) for the $9,800 paid, and the return for 12 months would have been 5.1%.
Adding accrued interest to the example, suppose that bond was purchased six months prior to maturity. Accrued interest of $150 would have been paid. $10,300 would be received at maturity for $9,950 paid (principal plus accrued interest), and the return for 6 months would have been 3.5%. However, the price for the principal six months before maturity is likely to be different than the price for the principal twelve months before maturity.
Because the return rates calculated here are not over the same number of months, the return rates are not directly comparable.
Simplifying the example, suppose the bond paid interest once a year and was bought just after the interest payment one year before maturity, so no accrued interest would have been paid when buying. $10,300 would be received at maturity (principal plus interest) for the $9,800 paid, and the return for 12 months would have been 5.1%.
Adding accrued interest to the example, suppose that bond was purchased six months prior to maturity. Accrued interest of $150 would have been paid. $10,300 would be received at maturity for $9,950 paid (principal plus accrued interest), and the return for 6 months would have been 3.5%. However, the price for the principal six months before maturity is likely to be different than the price for the principal twelve months before maturity.
Because the return rates calculated here are not over the same number of months, the return rates are not directly comparable.
Statistics: Posted by FactualFran — Sat Sep 07, 2024 10:50 pm — Replies 3 — Views 172