1. What is Yield to Call?

Yield to Call (YTC) is the annual return an investor would receive if they held a preferred stock until its call date, assuming the issuer exercises their right to call the shares. It's a crucial metric for evaluating callable preferred stocks.

2. How Does the Calculator Work?

The calculator uses the Yield to Call formula:

Where:

• Annual Dividend — Fixed dividend payment per share
• Call Price — Price at which issuer can redeem shares
• Market Price — Current trading price of the preferred stock
• Years to Call — Time until the call date

Explanation: The formula accounts for both the dividend income and capital gain/loss from the call price difference, annualized over the period until call.

3. Importance of YTC Calculation

Details: YTC helps investors compare callable preferred stocks with other fixed-income investments and assess the potential return if the shares are called.

4. Using the Calculator

Tips: Enter all values in USD except Years to Call. Ensure Market Price and Call Price are positive numbers. Years to Call must be greater than 0.

5. Frequently Asked Questions (FAQ)

Q1: How does YTC differ from Yield to Maturity?
A: YTC assumes the security is called at the earliest call date, while YTM assumes it's held until maturity.

Q2: What's a good YTC for preferred stock?
A: This depends on market conditions, but typically investors look for YTC higher than comparable non-callable preferreds to compensate for call risk.

Q3: Why would a company call preferred shares?
A: Companies typically call shares when interest rates fall, allowing them to refinance at lower dividend rates.

Q4: What happens if shares aren't called?
A: If not called, the preferred stock continues paying dividends until either called or redeemed at maturity.

Q5: Does YTC account for reinvestment risk?
A: No, YTC doesn't account for what happens to proceeds after the call. Investors should consider reinvestment risk separately.