How this calculator works
A callable bond gives the issuer the right to redeem the bond early at a stated call price, usually a small premium to face value. Yield to call measures the return if the bond is redeemed on the assumed call date rather than held to maturity. It discounts the coupons up to that date and the call price itself, then solves for the rate that makes their present value equal the market price. When a bond trades above its call price, the yield to call is usually lower than the yield to maturity, because the holder may lose the premium early. The calculation assumes annual coupons and a whole number of years to the call date.
Formula
Market price = sum from t = 1 to n of C / (1 + y)^t plus Call / (1 + y)^n, solved for y. C is the annual coupon, Call the call price, n the years to the call date and y the yield to call. Current yield = annual coupon / market price.
Worked example
A bond paying $50 a year, callable in five years at $1,025 and trading at $980, has a yield to call of about 5.918%. The current yield is 50 / 980 = 5.102%, higher than the coupon rate because the bond trades below face value. The holder also stands to gain $45 if the bond is called at $1,025.
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Frequently asked questions
What is yield to worst?
It is the lower of the yield to maturity and the yields to each possible call date. For a bond trading above its call price, the yield to call is often the worst outcome, so it is the number to compare with alternatives.
Will the bond actually be called?
Not necessarily. Issuers usually call when refinancing is cheaper, which tends to happen when rates have fallen. The calculator shows the return if the call happens on the date you enter, not a probability-weighted result.
Why only annual coupons?
This page uses annual coupon payments so the call date falls on a coupon date. For semi-annual coupons, use the yield to maturity calculator with the call price in place of face value and the call date as the maturity, then double the periodic result.
What about make-whole calls?
Many corporate bonds have make-whole provisions that set the redemption amount from a government yield plus a spread. The call price then depends on rates at the time, so enter the amount the provision would produce.