What is Yield To Call

Yield to call (YTC) is a financial term that refers to the return a bondholder receives if the security is held until the call date, before the debt instrument reaches maturity. This number can be mathematically calculated as the compound interest rate at which the present value of a bond's future coupon payments and call price is equal to the current market price of the bond.

Yield to call applies to callable bonds, which are those instruments that let bond investors redeem the bonds on what is known as the call date, at a price known as the call price. By definition, the call date of a bond chronologically occurs before the maturity date. Generally speaking, bonds are callable over several years and are normally called at a slight premium.

Key Takeaways

  • The term "yield to call" refers to the return a bondholder receives if the security is held until the call date, prior to the instrument's date of¬†maturity.¬†
  • Yield to call may be applied to callable bonds, which are securities that let bond investors redeem the bonds on the call date, at the call price.
  • Yield to call can be mathematically calculated, using computer programs.


Many bonds are callable, especially those issued by corporations. Calculating the yield to call on such bonds is important because it reveals rate of return the investor will receive, assuming the following points are true:

  1. The bond is called on the earliest possible date
  2. The bond is purchased at the current market price
  3. The bond is held until the call date

Yield-To-Call Calculation Example

Although the formula used to calculate the yield to call looks slightly complicated at first glance, it is actually quite straightforward. The components of the formula are as follows:

P = the current market price

C = the annual coupon payment

CP = the call price

t = the number of years remaining until the call date

YTC = the yield to call

The complete formula to calculate yield to call is:

P = (C / 2) x {(1 - (1 + YTC / 2) ^ -2t) / (YTC / 2)} + (CP / (1 + YTC / 2) ^ 2t)

Based on this formula, the yield to call cannot be solved for directly. An iterative process must be used to find the yield to call, if the calculation is being done by hand. Fortunately, many computer software programs have a "solve for" function that's capable of calculating such values, with a click of the mouse.

As an example, consider a callable bond that has a face value of $1,000 and pays a semiannual coupon of 10%. The bond is currently priced at $1,175 and has the option to be called at $1,100 five years from now. Note that the remaining years until maturity does not matter for this calculation.

Using the above formula, the calculation would be set up as:

$1,175 = ($100 / 2) x {(1- (1 + YTC / 2) ^ -2(5)) / (YTC / 2)} + ($1,100 / (1 + YTC / 2) ^ 2(5))

Through an iterative process, it can be determined that the yield to call on this bond is 7.43%.

[Important: The yield to call is widely deemed to be a more accurate estimate of expected return on a bond than the yield to maturity.]