Knowledge Base

Solution 11233: Computing for the Yield-to-Call of a Callable Bond Using the BA II PLUS™ Family Financial Calculator.

How can I compute for the yield-to-call of a callable bond using the BA II PLUS or BA II PLUS PROFESSIONAL?

The Yield-to-Call is the rate of return that would be earned if an investor bought a callable bond at its current market price and held it until the call date (given that the bond was called on the call date). A Callable Bond is one that can be redeemed before its call date. Follow the example below to compute for the yield-to-call of a callable bond using the BA II PLUS family calculator.

For Example: Find the yield to call on a semi-annual coupon bond with a face value of $1000, a 10% coupon rate, 15 years remaining until maturity given that the bond price is $1175 and it can be called 5 years from now at a call price of $1100.

The following values are known:

Bond Price: $ 1175
Face Value: $ 1000
Coupon rate: 10%
Years to Maturity: 15
Call Price: $ 1100
Years until Call Date: 5

1) Press [2nd] [P/Y] to access the P/Y and C/Y worksheet.
2) Input 2 and press [ENTER] to set P/Y to semi-annual periods. This also sets C/Y to semi-annual compounds.
3) Press [2nd] [QUIT] to exit the P/Y and C/Y worksheet.
4) Press [2nd] [CLR TVM] to remove any previously stored values from the calculator's TVM variables.
5) Input 1175 and press [+/-] [PV]. This stores -1175 to the PV variable.
6) Input 5 and press [2nd] [xP/Y] [N]. This stores 10 to the N variable.
7) Input 1100 and press [FV]. This stores 1100 to the FV variable.
8) Input 50 and press [PMT]. This stores 50 to the PMT variable.

Please Note: To calculate the coupon payment (PMT), multiply the face value of the bond (1000) by the coupon rate (10%) and then divide by 2 (semi-annual coupon). (1000 * 10%) / 2 = 50.

9) Press [CPT] [I/Y].

The yield-to-call of the example callable bond is 7.43%.