1. What is Yield to Call?

Yield to Call (YTC) is the return on a bond if it is called by the issuer before its maturity date. It considers the call price, call date, coupon payments, and current market price.

2. How Does the Calculator Work?

The calculator uses the YTC equation:

Where:

• \( \text{Price} \) — Current market price of the bond (USD)
• \( \text{Coupons} \) — Periodic coupon payments (USD)
• \( t \) — Number of periods until call date
• \( \text{Call} \) — Call price of the bond (USD)
• \( \text{call periods} \) — Number of periods until call date

Explanation: The equation calculates the discount rate (YTC) that equates the present value of future cash flows to the bond's current price.

3. Importance of YTC Calculation

Details: YTC helps investors evaluate bonds with call features by showing the potential return if the bond is called. It's particularly important when bonds trade above call price.

4. Using the Calculator

Tips: Enter the bond's current price, coupon payment amount, number of periods until call, call price, and call periods. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between YTM and YTC?
A: Yield to Maturity (YTM) assumes the bond is held to maturity, while YTC assumes it's called at the earliest call date.

Q2: When should I use YTC instead of YTM?
A: Use YTC when the bond is likely to be called (trading above call price in a declining rate environment).

Q3: What does a high YTC indicate?
A: A high YTC relative to YTM suggests the bond is more likely to be called, limiting upside potential.

Q4: How does call protection affect YTC?
A: Bonds with longer call protection periods will have YTC calculations based on later call dates.

Q5: Why is YTC typically lower than YTM?
A: Because call prices are usually below par value, resulting in lower returns if called early.