Yield to call

Yield to call, also known as yield to maturity, represents the expected rate of return for an investor holding a bond or note until its call date. It pertains specifically to securities that can be redeemed before their maturity date. Callable bonds, which allow investors or issuers to repurchase the bonds, typically possess this feature.

When callable bonds are redeemed, they are usually bought back at a slightly higher price than their face value, determined by prevailing market rates. To calculate the yield to call, the following formula is employed:

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

Where:

P = current market price

C = annual coupon payment

CP = call price

t = remaining years until the call date

YTC = yield to call

As a result, the value of yield to call needs to be expressed indirectly.