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Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. Bonds are usually called when interest rates fall so significantly that the issuer can save money by issuing new bonds at lower rates.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A provision in an indenture that allows a bond to be redeemed before maturity. Callability allows the bond to be called at the discretion of the issuer, within certain limits. When the bond is called, the bondholder receives the par value (or sometimes slightly more) and does not receive any more coupons. Callable bonds are issued to allow the issuers to hedge against interest rate risk. That is, if interest rates fall significantly, they can call the bond and issue a new bond at a lower interest rate, reducing their liabilities. However, to protect the bondholder, most callable bonds also include call protection, which prevents the bonds from being called for a certain period of time and thereby guarantees the current interest rate for that time.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
A bond issue, all or part of which may be redeemed before maturity by the issuing corporation under specific conditions. The term also applies to preferred shares of stock, which may be redeemed by the issuing corporation.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary