Call Provision

AAA

DEFINITION of 'Call Provision'

A provision on a bond or other fixed-income instrument that allows the original issuer to repurchase and retire the bonds. If there is a call provision in place, it will typically come with a time window under which the bond can be called, and a specific price to be paid to bondholders and any accrued interest are defined.

Callable bonds will pay a higher yield than comparable non-callable bonds.

INVESTOPEDIA EXPLAINS 'Call Provision'

A bond call will almost always favor the issuer over the investor; if it doesn't, the issuer will simply continue to make the current interest payments and keep the debt active. Typically, call options on bonds will be exercised by the issuer when interest rates have fallen. The reason for this is that the issuer can simply issue new debt at a lower rate of interest, effectively reducing the overall cost of their borrowing, instead of continuing to pay the higher effective rate on the borrowings.

RELATED TERMS
  1. Call Premium

    1. The dollar amount over the par value of a callable fixed-income ...
  2. Callable Bond

    A bond that can be redeemed by the issuer prior to its maturity. ...
  3. Yield To Call

    The yield of a bond or note if you were to buy and hold the security ...
  4. Forced Conversion

    The occurrence of an issuer of a convertible security exercising ...
  5. Bond

    A debt investment in which an investor loans money to an entity ...
  6. Implied Call

    A right given to mortgage borrowers that allows them to call ...
Related Articles
  1. Bond Call Features: Don't Get Caught ...
    Bonds & Fixed Income

    Bond Call Features: Don't Get Caught ...

  2. Callable Bonds: Leading A Double Life
    Options & Futures

    Callable Bonds: Leading A Double Life

  3. Leverage Your Returns With A Convertible ...
    Bonds & Fixed Income

    Leverage Your Returns With A Convertible ...

  4. Convertible Bonds: An Introduction
    Bonds & Fixed Income

    Convertible Bonds: An Introduction

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center