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Trading and Investment Terms

Yield To Call

Yield to call (YTC) can be defined as a financial expression that is used to refer to the return a bond owner gets if the security is held until the call date, which happens at some point prior to it reaching maturity.

Yield to call can be arithmetically calculated as the compound interest rate at which the current value of a security's future coupon installments and call price is equivalent to the present market price of the security.

Despite the fact that the equation used to ascertain the yield to call looks somewhat complex at first glance, it is actually quite direct.

The complete formula to ascertain yield to call is:

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

Where:

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

Yield to call applies to callable securities, which are obligation instruments that let security investors recover the securities—or the security issuer to repurchase them—on what is known as the call date, at a price referred to as as the call price.

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