A Yield to Call Calculator is a financial tool used to calculate the yield an investor can expect to receive if a callable bond is redeemed by the issuer before its maturity date.
Let’s say you purchase a bond with a face value of $1,000, paying 5% annual interest, set to mature in 10 years. However, the bond is callable after 5 years.
A YTC Calculator would help you determine your potential return if the bond is called at the 5-year mark, considering factors like the current price of the bond and the call price.
Yield to Call Conversion Chart
| Bond Parameter | Value |
|---|---|
| Face Value | $1,000 |
| Coupon Rate | 5% |
| Current Price | $980 |
| Years to Call | 5 |
| Call Price | $1,020 |
| Yield to Call | 5.67% |
Yield to Call Conversion Formula
The Yield to Call (YTC) formula is complex and typically requires iterative calculations.
YTC = (Coupon Interest + (Call Price - Current Price) / Years to Call) / ((Call Price + Current Price) / 2)Using our previous example:
- Annual Coupon Interest: $1,000 * 5% = $50
- Price Difference: $1,020 – $980 = $40
- Years to Call: 5
YTC = ($50 + ($40 / 5)) / (($1,020 + $980) / 2) ≈ 5.67%This calculation gives us an approximate yield to call of 5.67%.
How do you calculate yield to call?
To calculate yield to call:
Determine the bond’s face value, coupon rate, current price, call date, and call price.
Calculate the annual interest payments.
Determine the gain or loss if called (call price minus current price).
Use a financial calculator or spreadsheet function to solve for the yield that makes the present value of all cash flows equal to the current price.
A $10,000 bond paying 4% annually is currently priced at $9,800. It’s callable in 3 years at $10,100.
- Annual interest: $10,000 * 4% = $400
- Gain if called: $10,100 – $9,800 = $300
- Using a financial calculator, we might find a YTC of approximately 5.2%.
Yield to call vs yield to maturity
Yield to Call (YTC) and Yield to Maturity (YTM) are both measures of a bond’s return, but they differ in their assumptions about when the bond’s principal will be repaid.
YTC assumes the bond will be called at the earliest possible date, while YTM assumes the bond will be held until its maturity date. Investors typically compare these yields to make informed decisions.
Consider a 20-year bond with a 6% coupon, currently trading at $980, with a call option after 5 years at $1,010.
- YTM might be calculated as 6.2%, assuming the bond is held for all 20 years.
- YTC might be 6.5%, assuming the bond is called after 5 years.
In this case, the YTC is higher, suggesting that if the bond is called, the investor would receive a better return than if held to maturity.
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