Yield to Call Calculator

What is Yield to Call?

Yield to Call (YTC) is a financial metric used to evaluate the total return an investor would receive by holding a callable bond until its call date, assuming the bond is called prior to its maturity. It's particularly important for bonds trading at a premium, as they are more likely to be called early.

The Yield to Call Formula

The formula for calculating Yield to Call is:

\[P = \sum_{t=1}^{n} \frac{C}{(1+YTC)^t} + \frac{CP}{(1+YTC)^n}\]

Where:

• \(P\) = Current bond price
• \(C\) = Periodic coupon payment
• \(CP\) = Call price
• \(n\) = Number of periods until the call date
• \(YTC\) = Yield to call (what we're solving for)

Step-by-Step YTC Calculation

1. Determine the bond's face value, current price, coupon rate, years to call, and call price.
2. Calculate the periodic coupon payment.
3. Determine the number of periods until the call date.
4. Use a numerical method (like Newton-Raphson or binary search) to solve for YTC.
5. Convert the periodic YTC to an annual rate if necessary.
6. Express the result as a percentage.

Example Calculation

Let's calculate the YTC for a bond with these characteristics:

• Face Value: $1,000
• Current Price: $1,050
• Coupon Rate: 5% (annual)
• Years to Call: 3
• Call Price: $1,020

1. Annual coupon payment = $1,000 × 5% = $50
2. Using a numerical method, we find YTC ≈ 3.18%

Visual Representation

This graph illustrates how the yield changes over time until the call date. The blue line represents the yield curve, starting from the coupon rate and ending at the calculated YTC.