1. What is Yield to Call?

Yield to Call (YTC) is the total return anticipated on a bond if it is held until the call date, when the issuer can redeem it before maturity. This calculation considers both coupon payments and the call price.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( PV \) — Current bond price
• \( CF \) — Periodic coupon payment
• \( Call \) — Call price of the bond
• \( YTC \) — Years until call date
• \( i \) — Yield to call (solved for)
• \( t \) — Time period

Explanation: The calculator uses numerical methods to solve for the yield (i) that equates the present value of all future cash flows to the current bond price.

3. Importance of YTC Calculation

Details: YTC helps investors evaluate bonds that are likely to be called, providing a more accurate measure of potential return than yield to maturity for callable bonds.

4. Using the Calculator

Tips: Enter the bond's current price, call price, years to call, periodic coupon payment, and number of remaining coupon periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: When is YTC more relevant than YTM?
A: YTC is more relevant when the bond is trading above its call price and interest rates are falling, making it likely the issuer will call the bond.

Q2: What's the difference between YTC and YTM?
A: YTM assumes the bond is held to maturity, while YTC assumes it's called at the earliest call date.

Q3: What happens if a bond isn't called?
A: If not called, the bond continues to maturity and the actual return will be the yield to maturity (YTM).

Q4: How does call premium affect YTC?
A: Higher call premiums (difference between call price and par value) generally increase YTC.

Q5: Why might a bond be called?
A: Issuers typically call bonds when interest rates fall, allowing them to refinance at lower rates.