Option-adjusted yield

The required market discount rate calculated from the option-adjusted price of a bond with embedded option.

The option-adjusted yield is less than or equal to the yield-to-maturity. This is consistent with reasoning as callable bonds should have higher yields to compensate bondholders for the issuer’s call option

The option-adjusted yield can be used to compare the yields of bonds with various embedded options to each other, or similar straight bonds.  

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