When it comes to helping you estimate your return on a callable bond, yield to maturity has a flaw. There are two deviations from the standard formula: To calculate a bond's yield to call, enter the face value (also known as "par value"), the coupon rate, the number of years to the call date, the frequency of payments, the call premium (if any), and the current price of the bond.. (Recorded with http://screencast-o-matic.com) The bond has a call provision that allows the issuer to call the bond away in five years. Yield to call can be mathematically derived and calculated from the formula. Yield to Call is a finance function or method used in the context of stock market, often abbreviated as YTC, represents the return from callable bond before its maturity, whereas, the YTM - Yield to Maturity represents the rate of return percentage, if the bond is held until its maturity in the stock market.. Formula to calculate Yield to Call (YTC) The formula below shows the relationship between the bond's price in the secondary market (excluding accrued interest) and its yield to maturity, or other yields, depending on the maturity date chosen. It is a date after the security is traded to the buyer that is after the issue date. Calculating Yield to Call Example. For example, you buy a bond with a $1,000 face value and 8% coupon for $900. It is highest at the start of call period and approaches the yield to maturity as the bond nears its maturity date. The Formula Relating a Bond's Price to its Yield to Maturity, Yield to Call, or Yield to Put. If the bond is called, the par value will be repaid and interest payments will come to an end, thus reducing its overall yield to the investor. ...then yield to call is the appropriate figure to use. The formula and steps to calculate yield to call are exactly the same as how we calculate yield to maturity, i.e., you calculate the discount rate that makes the present value of the future bond payments (coupons and par) equal to the market price of the bond plus any accrued interest. Yield to maturity is a formula used to determine what interest a bond pays until it reaches maturity. A callable bond can be valued by discounting its coupon payments and call price using the following formula: Assume a bond is maturing in 10 years and its yield to maturity is 3.75%. Yield to call is the price that will be paid if the issuer of a callable bond opts to pay it off early. How to calculate the yield to call on a callable bond using Excel and the Texas Instruments BAII calculator. Callable bonds generally offer a slightly higher yield to maturity. When its yield to call is calculated, the yield is 3.65%. Formula = YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis]) This function uses the following arguments: Settlement (required argument) – This is the settlement date of the security. Yield to call refers to earnings from callable bonds, where the issuing company or agency can call the bond, essentially paying it back early with less interest, usually saving itself money. Yield on a callable bond is called yield to call which varies with time. Divide by the number of years to convert to an annual rate. Valuation. Finally, add the two types of yield -- interest rate and bond price -- for each of the possible call dates as well as the maturity dates.

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