What is yield to call?

• A. The total return if the bond is called at the first call date.
• B. The yield corresponding to a put option.
• C. The yield if the bond is held to maturity.
• D. The volatility-adjusted yield.

Answer: (A)

Yield to call is the return you would earn on a callable bond if the issuer exercises the call feature at the first possible call date. To compute it, you assume you receive all coupon payments up to that first call date and then the call price at that date, solving for the yield that makes these cash flows equal to the bond’s current price. This is different from yield to maturity, which assumes you hold the bond until its final maturity, and from yield related to a put option or any volatility-adjusted yield, which are not the standard measure for a callable bond.