1. In
bonds, the act of an
issuer repurchasing a bond at or before
maturity. Redemption is made at the
face value of the bond unless it occurs before maturity, in which case the bond is bought back at a
premium to compensate for lost interest. The issuer has the right to redeem the bond at any time, although the earlier the redemption take place, the higher the premium usually is. This provides an incentive for companies to do this as rarely as possible.
2. The act of the issuing company repurchasing
stocks or
mutual funds. In the case of mutual funds, the repurchase is made at
net asset value per share. Stocks may be redeemed in cash or by
proration. See also:
Proratable factor.