Editing Openai/68df4a3a-428c-8013-a459-5cff8e17edde (section)

=== Assistant: Great question — this is a key feature in many bonds. ===
Great question — this is a key feature in many bonds.

==== A call provision is a clause in a bond contract (indenture) that gives the issuer (the company or government that issued the bond) the right to repay the bond early before its maturity date. ====

In other words, the issuer can “call back” the bond from investors, usually at a set price (call price).

==== - Interest Rate Advantage: If interest rates fall, the issuer can call the old high-interest bonds and reissue new bonds at a lower rate — saving money. ====
* Flexibility: Lets the company manage its debt more strategically (e.g., retire debt early if it has extra cash).

==== - A bond might say: “Callable after 5 years at 105% of face value.” ====
* This means the issuer can buy back the bond after 5 years, paying bondholders 105% of the bond’s face value (a little extra as compensation).

==== - Disadvantage: Investors lose out on future interest payments if the bond is called. ====
* Call Risk: Bonds are most likely called when interest rates drop, so investors may be forced to reinvest their money at lower rates.
* Compensation: Callable bonds usually offer higher coupon rates than non-callable bonds to make up for this risk.

==== A call provision lets the issuer repay a bond early. ====
* Good for the company (saves money if interest rates drop).
* Risky for investors (they might get their money back sooner and have to reinvest at lower returns).

Would you like me to also explain the opposite feature — a put provision, where investors can force the issuer to buy back the bond early?