Series 82: Call Risk

Call Risk

Callable bonds are subject to call risk. Call risk is the risk that a bond will be called when interest rates are declining. When interest rates decline, an issuer of a bond usually does not want to continue to pay interest payments at the higher rate, so the company borrows money at the lower rate and uses it to pay the bondholders their principal early. Note that the bondholder will receive the callable price at maturity if it is different from the par value. For example, if an investor purcha