Callability, Financial Management

It is a feature that allows the issuer to redeem its bonds before maturity. Almost all convertible bonds come with this feature. Due to this feature, bonds carry a risk, known as call risk. Normally, the call feature is differed for certain years. For instance, if a company issued 10 year callable bonds with a 4 year deferred period, it means the company can not use the call option before 4 years.

When the conversion value of the convertible bond goes up over the present call price, the company may call the bonds. This act of the company presents an investor with two choices: return the convertible bonds for the call price or convert the bonds into equity shares. If the conversion value is greater than the call price, a rational investor will choose to convert the bond. This is also in the interest of the issuing company, since the company does not desire to incur any cash flow to redeem the bonds.

Posted Date: 9/8/2012 6:15:54 AM | Location : United States







Related Discussions:- Callability, Assignment Help, Ask Question on Callability, Get Answer, Expert's Help, Callability Discussions

Write discussion on Callability
Your posts are moderated
Related Questions
It is also important to compare the returns from the equity stock and the bond to determine the profitability of both investments. We have seen above that the div

Question: a. Le Mustang company Ltd is foreseeing a growth rate of 15 per cent per annum in the next three years. It is likely to fall to 12 per cent in the fourth year. Afte

What are the main implications of ownership rights by equity claims? Ownership rights have two primary implications: a. First, equity holders can advantage by any raise in t

Call provision is the right of the issuer to call back and retire the issued bonds before the maturity date. The issuer may call the bond and retire the bond by paying

Time Series and Demand Forecasting   The process of budgeting in many organizations starts with a forecast of demand for the products in the forthcoming year and the sales f

What are the benefits of the JIT inventory control system? The just-in-time that is abbreviated as JIT inventory control system lowers inventory carrying costs and tends to inc

Forward market evaluation Net receipt in 1 month = 240000 - 140000 = $100000 Nedwen Co requires to sell dollars at an exchange rate of 1.7829 + 0.003 = $1.7832 per £ Ster

Debenture Debenture is a document holding an acknowledgment of indebtedness on the part of organizations, usually secured by a charge on the company's assets.

a. The primary financial objective of a company is the maximization of the wealth of shareholders ...per corporate finance theory.    Though, this objective is usually replaced by

There is some discussion on whether Multinational Corporations (MNC's) enhance risk when borrowing foreign currencies. Those in favor of borrowing state that lower costs of financi