Episode Summary If two bonds have the same issuer, maturity, and credit rating, but one offers a higher yield, there is always a catch. This episode breaks down the golden rule of embedded options: "whoever holds the option pays for it". We explore callable, retractable, and convertible bonds, how options alter traditional price sensitivity, and why the yield you see is often not the yield you will actually receive.

Key Concepts

• Callable Bonds: These grant the issuer the right to redeem the debt early (usually when interest rates fall). This introduces reinvestment risk, as you are handed cash precisely when high yields are no longer available in the market, capping your upside.
• The Yield-to-Worst Standard: When evaluatin ...