Enter the risk-free rate and the credit risk premium into the calculator to determine the yield to worst of a bond.
Yield to Worst Formula
The following equation can be used to calculate the yield to worst.
YTW = RFR + CRP
- Where YTW is the yield to worst
- RFR is the risk-free rate
- CRP is the credit risk premium
Yield to Worst Definition
A yield to worst is defined as the sum of the risk-free rate and the credit risk premium of a bond. It’s equal to the lower of the yield-to-call and yield-to-maturity.
Yield to Worst Example
How to calculate yield to worst?
- First, determine the risk free rate.
Calculate or measure the risk free rate of the bond.
- Next, determine the credit risk premium.
Calculate or measure the credit risk premium associated with the bond.
- Finally, calculate the yield to worst.
Calculate the yield to worst using the equation above.
What is YTW?
YTW stands for yield to worst and is a measure of the lower of the either YTM or YTC of a bond.