1 answer

What is meant by the phrase "calling a bond?" Why would a company call a bond?...

Question:

What is meant by the phrase "calling a bond?"

Why would a company call a bond?

How is a gain or loss on a bond call calculated?


Answers

Calling a bond means Callable or redeemable bonds are bonds that can be redeemed or paid off by the issuer prior to the bonds' maturity date. When an issuer calls its bonds, it pays investors the call price (usually the face value of the bonds) together with accrued interest to date and, at that point, stops making interest payments. Sometimes a call premium is also paid. Call provisions are often a feature of corporate and municipal bonds.

B) An issuer will usually call the bond when interest rates fall. This calling leaves the investor exposed to replacing the investment at a rate that will not return the same level of income.

Conversely, when market rates rise, the investor can fall behind when their funds are tied up in a product that pays a lower rate.

C)n many cases, calculating the gain or loss on a bond redemption is fairly simple. If you take the redemption proceeds and subtract what you originally paid for the bond, then the difference will tell you the answer. If it's positive, then you have a gain. If it's negative, you've lost money on the bond.

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