BROWSE

Call Privilege

What is 'Call Privilege'

The provision in a bond indenture that gives the bond issuer the option to redeem all or part of the bond issue, at pre-determined prices on certain specified dates. These dates are known as "call dates" and form the call schedule. The term "call privilege" derives its name from the fact that the issuer's option to redeem the bond issue, is akin to a call option on the bonds. In return for this privilege, the issuer will generally pay a coupon rate that is higher than that paid by straight bonds of comparable maturity and credit quality.

Explaining 'Call Privilege'

The pre-determined price at which a bond can be called is generally higher than the par or issue price. This call premium is demanded by investors to justify the risk involved in holding bonds that have call privileges embedded in them. Since an issuer is quite likely to exercise its call privilege when prevailing interest rates are significantly lower than they were at the time the bond was issued, buyers of callable bonds have to deal with reinvestment risk, or the risk of investing bond proceeds at lower interest rates. In the case of bonds that contain call privileges, "yield to call" may be a better measure of the yields that investors can expect from such bonds, rather than "yield to maturity."


Further Reading


Examining how aspects of vocational privilege relate to living a calling
www.tandfonline.com [PDF]
… provides empirical support for Blustein's assertion that access to social and economic resources might … it may represent the gateway from more objective indicators of vocational privilege to subjective … the experience at work is what drives seeing one's job as a calling, and one …

Convertible calls and security returnsConvertible calls and security returns
www.sciencedirect.com [PDF]
… provides empirical support for Blustein's assertion that access to social and economic resources might … it may represent the gateway from more objective indicators of vocational privilege to subjective … the experience at work is what drives seeing one's job as a calling, and one …

Convertible bonds: Valuation and optimal strategies for call and conversionConvertible bonds: Valuation and optimal strategies for call and conversion
www.jstor.org [PDF]
… provides empirical support for Blustein's assertion that access to social and economic resources might … it may represent the gateway from more objective indicators of vocational privilege to subjective … the experience at work is what drives seeing one's job as a calling, and one …

Future investment opportunities and the value of the call provision on a bondFuture investment opportunities and the value of the call provision on a bond
www.jstor.org [PDF]
… provides empirical support for Blustein's assertion that access to social and economic resources might … it may represent the gateway from more objective indicators of vocational privilege to subjective … the experience at work is what drives seeing one's job as a calling, and one …

Equity financing and corporate convertible bond policyEquity financing and corporate convertible bond policy
www.sciencedirect.com [PDF]
… provides empirical support for Blustein's assertion that access to social and economic resources might … it may represent the gateway from more objective indicators of vocational privilege to subjective … the experience at work is what drives seeing one's job as a calling, and one …

The value of the call option on a bondThe value of the call option on a bond
www.sciencedirect.com [PDF]
… provides empirical support for Blustein's assertion that access to social and economic resources might … it may represent the gateway from more objective indicators of vocational privilege to subjective … the experience at work is what drives seeing one's job as a calling, and one …

The battle over privileges and pension reform: Evidence from legislative roll call analysis in PolandThe battle over privileges and pension reform: Evidence from legislative roll call analysis in Poland
www.tandfonline.com [PDF]
… provides empirical support for Blustein's assertion that access to social and economic resources might … it may represent the gateway from more objective indicators of vocational privilege to subjective … the experience at work is what drives seeing one's job as a calling, and one …

The pathology of privilege: The economic consequences of government favoritismThe pathology of privilege: The economic consequences of government favoritism
papers.ssrn.com [PDF]
… provides empirical support for Blustein's assertion that access to social and economic resources might … it may represent the gateway from more objective indicators of vocational privilege to subjective … the experience at work is what drives seeing one's job as a calling, and one …

Power and privilege in Trinidad and TobagoPower and privilege in Trinidad and Tobago
www.jstor.org [PDF]
… provides empirical support for Blustein's assertion that access to social and economic resources might … it may represent the gateway from more objective indicators of vocational privilege to subjective … the experience at work is what drives seeing one's job as a calling, and one …



Q&A About Call Privilege


How do you know if a bond has call privileges?

The date of maturity and coupon rate are listed on the face of each bond in its indenture.

Does this increase in refinancing risk affect yield calculations ?

Yes, since "yield" is calculated based on what an investor can expect from holding a security until maturity , rather than what he can expect from investing proceeds immediately upon receipt .

When would an issuer be likely to exercise its right to redeem all or part of its outstanding bonds before maturity ?

An issuer is likely to exercise this right when prevailing interest rates are significantly lower than they were at issuance time. This reduces refinancing risk for issuers, but increases it for investors who hold such securities until maturity .

What is reinvestment risk?

Reinvestment risk refers to the possibility that investors will have less money available after interest rates fall, due to lower interest rates when they reinvest their money at maturity.

What does call privilege mean?

Call privilege means that the issuer has the option to redeem bonds at pre-determined prices on certain specified dates.

Why would an investor want to purchase a callable bond?

Investors may consider purchasing callable bonds because they offer higher yields than straight bonds with similar maturities and credit quality.

If so , how should we adjust our yield calculation formula ?

We need only add one more factor into our calculation formula - namely , "yield-to-call."

What is the term for the option given to an issuer to redeem a bond issue?

Call privilege.

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