1. What is Nominal Yield to Call?

Nominal Yield to Call (YTC) is the yield of a bond or note if you were to buy and hold the security until the call date. This calculation takes into account the impact of call features on the bond's yield.

2. How Does the Calculator Work?

The calculator uses the Nominal Yield to Call formula:

Where:

• \( Coupon \) — Annual coupon payment (currency)
• \( Call\ Price \) — Price at which bond can be called (currency)
• \( Price \) — Current market price of the bond (currency)
• \( Years \) — Years until call date (years)

Explanation: The numerator represents the annualized return components (coupon plus capital gain/loss), while the denominator represents the average investment over the period.

3. Importance of YTC Calculation

Details: YTC helps investors compare bonds with call features and assess the potential return if the bond is called before maturity. It's particularly important for callable bonds in a declining interest rate environment.

4. Using the Calculator

Tips: Enter all values in the same currency. Years can be fractional (e.g., 2.5 for 2 years and 6 months). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does YTC differ from Yield to Maturity (YTM)?
A: YTC assumes the bond will be called at the earliest call date, while YTM assumes the bond will be held until maturity.

Q2: What happens if a bond isn't called?
A: If a bond isn't called, the actual yield will be different from the YTC calculation, typically reverting to the YTM.

Q3: Why would a bond be called?
A: Issuers typically call bonds when interest rates fall, allowing them to refinance at lower rates.

Q4: How does call premium affect YTC?
A: Higher call prices (including call premiums) generally increase YTC as they provide more capital gain potential.

Q5: Should I always use YTC for callable bonds?
A: For bonds trading above call price, YTC is most relevant. For bonds trading below call price, YTM may be more appropriate.