Yield to Call (YTC)
The IRR that equates a callable bond's price to the present value of cash flows assuming the bond is called on the first call date at the call (redemption) price. Solved iteratively, like YTM, but the terminal payment and term are different.
When to use: Use whenever the bond has a call provision. If the bond is trading above the call price or yields are below the coupon (making early redemption likely), YTC is the realistic yield — and is usually below YTM.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| YTC | Yield to Call | IRR of the bond assuming it is called on the first call date at the call price | % |
| P | Bond Price | Market price of the bond per face value unit | $ |
| F | Face Value | Par value paid at maturity | $ |
| CR | Coupon Rate | Annual coupon rate as a decimal (e.g. 0.05 for 5%) | % |
| YearsToCall | Years to Call | Years until the first call date | years |
| Redemption | Call Price | Price at which the bond is redeemed if called | $ |
| m | Coupons per Year | Number of coupons paid per year (e.g. 2 for semi-annual) | integer |
Real-Life Examples
Example 1: Premium Bond Called at Par
$1,000-face, 6% semi-annual coupon, callable at $1,000 in 3 years, currently trading at $1,043.76.
Given
Step-by-Step
YTC is 4.43%, well below the 6% coupon. The premium price ($1,044) means buyers will lose ~$44 if called — and a callable issuer is most likely to call when rates have fallen below coupon, exactly the scenario where YTC matters most.
Frequently Asked Questions
When the bond trades at a premium (above call price) — early call truncates the high-coupon stream. When the bond trades at a discount, YTC > YTM because early redemption at par realizes the discount sooner.
Compute YTC for each call schedule entry and take the minimum (yield to worst). Issuers tend to call when it is most disadvantageous to the bondholder.
Use the actual call price (often par + a fraction of coupon early in the call schedule, declining to par later). The formula uses whatever Redemption you specify as the terminal cash flow.