A callable bond can be called in early. That means the issuer has the right to redeem the bond before its maturity date. You might buy a bond that promises to pay 9% for 30 years, but the fine print makes the bond callable in three years at 102 cents on the dollar. This means the company could pay you off sooner and you won't receive the full interest you expected to get over the full life of the bond.
Having the ability to call a bond protects the issuer in case interest rates drop a lot. If that happens, they can call in their bonds and issue new ones at lower rates.
Related or Semi-related Video
Finance: What is Forced Conversion?59 Views
Finance allah shmoop what is forced conversion Okay this is
forced conversion Yeah this is also forced conversion and so's
this Yeah that is the issuer of this particular bond
Like the company who borrowed money has the right as
described in the indenture to force you to convert the
bond either into and say twenty five shares of common
stock or something else Which sort of implies that a
stock price the over under price of breaking evens about
forty bucks a share takes you get that thousand dollars
divided by the twenty five shares Think it's you forty
bucks a share or the issuer or company who sold
the bond in the first place can simply call the
bond and force converted into cash for the small conversion
premium of ah two point five percent or that's twenty
five bucks in this thousand dollars par value bond So
in this sense essentially the break even Numbers actually 41
dollars a share not forty there because you get an
extra little premium bump there if they force you to
convert the bond or debt into equity Got it We'll
force conversion in a bond sense is usually something cos
do when they can either refinance the bond at cheaper
interest rates or are doing so well operationally that they
have enough cash Teo just retire their debt They call
it back They buy it back save the interest charges
and quick cash toe work doing something else Either way
it's usually weigh less painful than the other flavour of 00:01:30.926 --> [endTime] forced conversion
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