Question-36: What do you mean by call features on a bond?

Answer: If a bond has a call provision, it means the issuer retains the right to retire the debt (before the actual maturity date), and it can be fully or partially.

Question-37: Call provision on the bond is the beneficial for investor or borrower?

Answer: This gives the benefits to the borrower, because if market rates fall, borrower can replace the bond issue with a lower-interest-cost issue. So, this is beneficial for the corporations and municipalities. Because it would help borrower in the future to escape the restrictions like disposition of assets or collateral. It can also help corporations to restructure their balance sheets.

Question-38: So, can we say that call provision is not good and harmful for the investors?

Answer: Yes, the call provision is not good for investors, because they are always having the risk of losing a high-coupon bond when rates begin to decline. Because when the borrower calls the issue, they have to return the bond and get their money back and investors furfur cashflow would be affected, which was giving higher yield then current market prevailing rates. If bond has the call provision’s then the prospect of a call limits the appreciation in a bond’s price that could be expected when interest rates decline.

Question-39: What do you mean by call price, in case of callable bond?

Answer: The price at which the bonds are called back is known as call price.

Question-40: What do you mean by call premium in callable bonds?

Answer: The callable bonds when called before maturity their call price is higher than the par value. And the difference between call price and par value is known as call premium.