Yield to Call (YTC)
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
This model settles on a coupon date, with level coupons and a positive whole number of periods remaining. Between coupons, move each discount time to the actual settlement date and account for accrued interest; merely adding accrued interest to an unchanged coupon-date valuation is not exact.
Yield is the rate that equates discounted contractual cash flows to price. Realizing that rate as a compounded terminal-wealth return requires the assumed payments and reinvestment at that rate. Actual reinvestment rates can differ.
Yes, provided the periodic discount factor remains positive. The solver verifies that the returned yield reproduces the entered price.