SIE: Call Risk

Call Risk

Callable bonds are subject to call risk, the risk that a bond will be called when interest rates are declining. When interest rates decline, the 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 this money to call the bonds (pay the bondholders their principal early). Note that the bondholder will receive the callable price if it is different from the par value. For example, if an invest