Finance

Yield to Call Calculator

Calculate the yield to call (YTC) on callable bonds. Understand your potential return if the bond is called early.

$
$
%
years
$
Yield to call
3.25%
Approximate annual return if called
Current price
$1,050.00
Call price
$1,000.00
Price gain/loss
-$50.00
Annual coupon
$50.00
Total coupons
$150.00
Total return
$100.00
YTC
3.25%

Note: The bond is trading at a premium above the call price. If called, you would incur a loss on the principal.

What Is Yield to Call?

Yield to call (YTC) is the return an investor would receive if a callable bond is held until its call date, rather than its maturity date. Callable bonds give the issuer the right to redeem the bond early, typically when interest rates fall.

The YTC Approximation Formula

YTC≈C+CP−PtCP+P2\text{YTC} \approx \frac{C + \frac{CP - P}{t}}{\frac{CP + P}{2}}

Where:

  • C = Annual coupon payment
  • CP = Call price
  • P = Current market price
  • t = Years to call date

YTC vs YTM

MetricWhen to Use
Yield to CallCallable bonds trading at premium
Yield to MaturityNon-callable bonds or bonds at discount

For callable bonds trading above par, YTC is usually lower than YTM because the bond is likely to be called.

When Do Issuers Call Bonds?

Issuers typically call bonds when:

  • Interest rates have fallen significantly
  • The bond is trading well above par
  • They can refinance at lower rates

Example Calculation

For a bond with:

  • Current price: $1,050
  • Call price: $1,000
  • Coupon rate: 5% ($50/year)
  • Years to call: 3
YTC≈50+1000−105031000+10502=50−16.671025≈3.25%\begin{aligned} \text{YTC} &\approx \frac{50 + \frac{1000 - 1050}{3}}{\frac{1000 + 1050}{2}} \\[0.5em] &= \frac{50 - 16.67}{1025} \\[0.5em] &\approx 3.25\% \end{aligned}

Call Risk

When buying callable bonds at a premium:

  • You may lose principal if the bond is called
  • Your holding period may be shorter than expected
  • Consider YTC, not just YTM, for accurate return expectations