Question

Call feature? Who does a call feature benefit

Please answer it in bond area

Answer 1

A call feature in a bond gives a right to the issuer to redeem the bonds earlier, at his discretion, and the holders have no option but to surrender the bond and get the specified price.

The call feature benefits both the issuer and the purchaser.

The issuer can call back the bonds when interest rates go down. This will help the issuer to reduce his borrowing costs for the future. Further, it also offers flexibility, if the wants to change his capital structure later.

To the purchaser, the benefit will be in the form of a higher call price. Bonds are usually called at a premium.

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