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
Dividend yield method As per this method, the cost of Equity capital is the discount rate that equates the present value of expected future dividends per share with the net pro

Determine the method of Credit Rating It is obligatory for the issuing companies to get credit rating done on debt securities issues. Credit ratings are also required for Comme

Discounted Pay Back Period (DPBP) : The discounted payback period is the number of periods taken in recovering the investment outlay on the present value basis.  Discounted pa

Advantage of mutual funds Mutual Funds are advantageous to individual investors in relation to their direct involvement in investment portfolio activity covering the following

How does a preemptive right protect the interests of existing stockholders? A preventive right protects the interests of existing stockholders by giving them the opportunity to

Q. What is Translation risk? This risk occurs on consolidation of financial statements prior to reporting financial results and for this reason is as well known as accounting e

The fundamental principle is that when a tree is used to value an on-the-run issue, the resulting value should be arbitrage free i.e., it should be equal to the o

What are the advantages and the disadvantages of a new stock issue? A new stock issue increases funds and reduces the riskiness of the firm. It as well tends to send a negative

Debenture A kind of debt instrument that is not secured by physical any asset or collateral is known as debenture. Debentures are backed by the general creditworthiness and sta

The Walter's model, thus relates the question of distributing the dividends and retaining the earnings to the investment opportunities that are available with the firm. (i) If a