call risk(redirected from Call Risks)
A risk that a callable bond will be repaid early and that the money earned may not be able to be reinvested in a security with a comparable return. Suppose one invests in a callable bond with coupon payments of 4%. However, interest rates fall and the issuer calls the bond and pays the par value. The investor may make a profit, but now he/she may only purchase a bond with a coupon of 2.5%. Most callable bonds include call periods in the indenture, protecting the bondholder from this risk for a certain period of time. Call risk is one of the most common kinds of reinvestment risk.
See prepayment risk.