How to Calculate Yield to First Call

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Yield to first call is the rate of return if a bond is called by the issuer.
Yield to first call is the rate of return if a bond is called by the issuer. (Image: silver bevel symbol percentage image by PaulPaladin from Fotolia.com)

Some bonds are callable on a date before the final maturity date. A early call gives the issuer the option to retire the debt by calling in bonds. Callable bonds will have a specific call date and price. According to the Business Finance Online website, yield to maturity and yield to first call calculations cannot be accomplished by hand or with a regular calculator. The calculation process works backwards, attempting different yields until the current bond price is achieved. Bond calculators complete this process electronically.

Things You'll Need

  • Current Bond Market Price
  • Bond Annual Coupon Rate
  • Bond Payment Frequency
  • Bond Call Date
  • Bond Call Price
  • Bond Maturity Date
  • Bond Maturity Price

Obtain the required data from the bond broker. Bond prices are quoted as a percentage of the face amount of the bond. For example, if a $100,000 face value bond is quoted at 101.750, the market price of the bond is $101,750. The coupon rate is the annual interest paid on the bond, usually paid in two semi-annual payments.

Enter the bond data using an online bond calculator. Linked below are a simplified yield-to-call calculator from Business Finance Online and a more detailed calculator from Fidelity Investments.

Click on the calculate button to have the calculator determine the yield to first call for the bond. Repeat the steps for any other bonds you want to evaluate. The Fidelity Investments calculator will also calculate the yield to maturity.

Tips & Warnings

  • To check if the data entry was correct, evaluate the relationship of the yield to first call to the coupon rate. If the call price is higher that the current price, the yield to call will be higher than the coupon rate. If the call price is lower than the current price, the yield to call must be lower than the coupon rate. Use the lower of the yield to first call or yield to maturity to compare the expected returns of different bonds. The yield to first call result is the return for an investor that buys the bond at the current market price and it is called away at the first call date.
  • An accurate yield to call requires accurate data entry. Maintain the proper relationship between bond prices and face values while entering the bond information.

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