What is Yield to Call?
A yield to call is the calculation of the total yield that will result from investment of a bond, assuming the bond is held until the call date. There is also an assumption that the call price will remain constant and not be impacted by some irregular set of factors during the life of the bond. Investors will often make use of calculating the yield to call as part of the evaluations into whether or not to invest in the bond issue. The formula for calculating a yield to call is very straightforward. Essentially, it involves dividing the total annual income of the callable bond by the current principal amount and market price. From this figure, the difference between the purchase price and the call price is subtracted. In the event that the purchase price is lower than the call price, then the time value of the difference will also be accounted for in the calculation. The final answer will be in the form of a percentage, and serve as an indicator of the amount of return that the investor
