Effective call price

Effective call price

The strike price in a market redemption provision plus the accrued interest to the redemption date.
References in periodicals archive ?
Refunding calls should be out of the money for the investor, but in the money for the firm, i.e., the market price of the bond should exceed the effective call price, even though the conversion value of the bond is less than the effective call price.(7) Refunding calls of convertible bonds allow the firm to refinance the outstanding issue with another convertible bond, thereby restarting the debt-call game.
Characteristics of Convertible Bonds Issued Convertible bonds that are called or redeemed out of the money have conversion values that are less than the effective call price. These bonds do not infuse equity into the firm's capital structure.
In this paper, we examine calls of convertible bonds in which the effective call price of the bond exceeds the conversion value.(1) Several studies report negative common stock price reactions to calls of convertible bonds (see Mikkelson |13~, Ofer and Natarajan |16~, Campbell, Ederington, and Vankudre |3~, and Singh, Cowan, and Nayar |18~).
The average aggregate effective call price (including accrued interest) of the called bonds is 13.52% of the market value of equity.
The excess of conversion value over the effective call price was -5.96% on day -2, but rose to positive 1.14% on day +1 and 6.67% on the date that the conversion privilege expired.
The market value of the Paine Webber bond on day -2 is greater than the effective call price. The market value of the Recognition Equipment bond is less than the call price.
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