Yield to Call Calculator : YTC Formula and Examples

When you have a $1000 bond with a 5.5% coupon rate and 5 years to call at a call price of $1020, the ytc calculator process the info to compute your yield to call, typically expressed as an annual percentage.

How to Use Yield to Call Calculator

• Bond Face Value: Enter the bond’s face value (e.g., $1,000).
• Coupon Rate (%): Enter the annual coupon interest rate as a percentage.
• Current Price: Input the current market price of the bond.
• Call Price: Enter the price at which the bond can be called.
• Time to Call (Years): Input the number of years until the bond can be called.

The calculator will compute the bond’s YTC based on the inputs.

Yield to Call Formula

P = Σ[C/(1+YTC)^t] + [CP/(1+YTC)^n]

Where:

• P = Current bond price
• C = Annual coupon payment
• CP = Call price
• n = Number of years until first call date
• t = Time period for each payment

Basic YTC Formula:

YTC = r where 0 = -P + Σ(C/(1+r)^t) + K/(1+r)^n

Where:

• P = Current price
• C = Coupon payment
• K = Call price
• n = Number of periods
• r = Yield to call

Current Yield Formula:

Current Yield = (Annual Coupon Payment / Market Price) × 100

How to Calculate YTC

Identify key components:Current bond price, Annual coupon payments, Call price, Time until first call date

Map out cash flows:List all coupon payments until call date, Add the call price as final payment

For a $1000 bond at 5.5%, calculations include:

Annual Payment = $1000 × 5.5% = $55
Semi-annual = $55 ÷ 2 = $27.50 per payment

Key Components of YTC?

• Face Value: Original: $1000, Range: Variable
• Coupon Rate: Typical: 2-8%, Payment: Semi-annual
• Call Price: Premium: 1-3%, Timing: After set period
• Market Price: Range: Below/above par, Factors: Multiple
• Time Frame: Range: 1-30 years, Call: Usually 5-10 years

Yield to Call Examples

A Premium Corporate Bond purchased for $2,500 with a 7% coupon rate, callable in 3 years at $2,400, results in a YTC of 4.2%. The premium price combined with an early call feature significantly impacts the potential return.

To a Municipal Bond trading at $8,000 with a 4.5% tax-free coupon and callable at $7,800 in 2 years, the YTC works out to 3.1%. The tax benefits partially offset the lower nominal yield.

Consider a High-Yield Corporate Bond bought at $5,000, paying 9% annually and callable at $5,200 in 4 years. Despite the higher coupon, early call provisions limit the YTC to 6.8%.

In the case of a Treasury Bond purchased at $10,000 with a 3% coupon and callable at $9,900 in 5 years, the YTC comes to 2.7%. The lower yield reflects the minimal credit risk.

A Junk Bond priced at $4,000 with an 11% coupon, callable at $4,100 in 2 years, produces a YTC of 8.9%. The higher yield compensates for increased default risk.

What is Yield to Call vs. Yield to Maturity

Yield to maturity (YTM) measures return if you hold the bond until its final maturity date, while yield to call (YTC) calculates return if the bond is called early. The lower of these two yields becomes your yield to worst – the most conservative return estimate.

Think of YTM as planning a cross-country road trip to your final destination, while YTC is like calculating an alternate route that ends at an earlier stop. Smart investors consider both scenarios when making investment decisions.

What is Yield to Call?

Yield to call is the total return an investor would receive by holding a callable bond until its earliest call date. It’s like a bond’s potential return – uniquely combining interest payments and capital appreciation or loss.