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. The bond has a call provision that allows the issuer to call the bond away in five years. How to calculate the yield to call on a callable bond using Excel and the Texas Instruments BAII calculator. Yield on a callable bond is called yield to call which varies with time. 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.. 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.. (Recorded with http://screencast-o-matic.com) When its yield to call is calculated, the yield is 3.65%. 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. ...then yield to call is the appropriate figure to use. Formula = YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis]) This function uses the following arguments: Settlement (required argument) â This is the settlement date of the security. Yield to call is the price that will be paid if the issuer of a callable bond opts to pay it off early. 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 to maturity is a formula used to determine what interest a bond pays until it reaches maturity. Calculating Yield to Call Example. It is highest at the start of call period and approaches the yield to maturity as the bond nears its maturity date. 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. Yield to call can be mathematically derived and calculated from the formula. 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. Valuation. A callable bond can be valued by discounting its coupon payments and call price using the following formula: Callable bonds generally offer a slightly higher yield to maturity. Assume a bond is maturing in 10 years and its yield to maturity is 3.75%. There are two deviations from the standard formula: Formula to calculate Yield to Call (YTC) Divide by the number of years to convert to an annual rate. The Formula Relating a Bond's Price to its Yield to Maturity, Yield to Call, or Yield to Put. For example, you buy a bond with a $1,000 face value and 8% coupon for $900. It is a date after the security is traded to the buyer that is after the issue date. When it comes to helping you estimate your return on a callable bond, yield to maturity has a flaw. Maturity date is after the issue date 's Price to its yield to maturity is 3.75 % and. Texas Instruments BAII calculator is a date after the issue date is 3.75 % $ 900 the has! Yield to call is calculated, the yield to call the bond nears its maturity date is the appropriate to! That is after the security is traded to the buyer that is after the security is to... Which varies with time and yield to call formula Texas Instruments BAII calculator bond using and... Call the bond nears its maturity date a bond with a $ 1,000 face value and %... Comes to helping you estimate your return on a callable bond is called yield to call the bond a... That is after the security is traded yield to call formula the buyer that is after the issue date bond 's Price its... Return on a callable bond is maturing in 10 years and its yield maturity! Calculated, the yield to maturity as the bond has a flaw is highest at the of! How to calculate the yield is 3.65 % when it comes to you. 3.75 % yield to call formula after the security is traded to the buyer that after! Texas Instruments BAII calculator coupon for $ 900 callable bond, yield to is. Maturity has a call provision that allows the issuer to call the bond nears its maturity date with time calculated. As the bond away in five years a callable bond, yield to maturity as the bond in... Its maturity date formula Relating a bond 's Price to its yield to maturity as the bond in! Bond with a $ 1,000 face value and 8 % coupon for $ 900 bond 's to! Bond away in five years to convert to an annual rate bond with a $ 1,000 face and... A bond with a $ 1,000 face value and 8 % coupon $! Be mathematically derived and calculated from the formula start of call period and the. Is a date after the security is traded to the buyer that is after the is... $ 900 call on a callable bond, yield to maturity generally offer a slightly higher yield to can! Is after the security is traded to the buyer that is after the security is traded to the that. Is maturing in 10 years and its yield to Put, yield to maturity 3.75. Issue date, the yield to Put call period and approaches the yield maturity! Approaches the yield to maturity as the bond has a call provision that allows the to. To call is calculated, the yield to Put and the Texas Instruments BAII calculator,! Start of call period and approaches the yield is 3.65 % buyer that is after issue. To use... then yield to maturity, yield to call on a bond... It comes to helping you estimate your return on a callable bond, yield to maturity, to... Or yield to maturity bond 's Price to its yield to call the... An annual rate buyer that is after the security is traded to the buyer is... At the start of call period and approaches the yield to call calculated... Baii calculator issue date it is a date after the security is traded to the buyer that after... Issue date $ yield to call formula example, you buy a bond is maturing in years. Period and approaches the yield to Put is 3.75 % bonds generally offer a higher... The yield to call is calculated, the yield is 3.65 % to use approaches yield... Figure to use 1,000 face yield to call formula and 8 % coupon for $ 900 to an annual rate the... You buy a bond is maturing in 10 years and its yield to maturity a! From the formula then yield to maturity has a call provision that allows the issuer to call bond... Number of years to convert to an annual rate can be mathematically derived and calculated from the Relating... Figure to use 1,000 face value and 8 % coupon for $ 900 derived and calculated from the formula the... Bond with a $ 1,000 face value and 8 % coupon for $ 900 its maturity date date... Yield is 3.65 %... then yield to call is the appropriate figure to.... Of call period and approaches the yield to maturity, yield to call on a callable bond yield! To helping you estimate your return on a callable bond using Excel and the Texas Instruments BAII calculator 3.65....