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When you were
growing up, were you ever called home for dinner? Companies can sometimes
"call home," or redeem, bonds they have issued prior to the bonds' maturity
dates. Callability is the ability of a bond issuer to redeem its
bonds early.
Some bonds—but not all—are issued with a call provision,
described in the indenture, or agreement between the bondholder and the
bond issuer, as well as in the bond's prospectus. The call
provision outlines when the issuer may call the bond; often this date is 10
years after the bond has been issued. For instance, a company may be able
to call its 20-year bonds after 10 years. The call provision also outlines
the price at which the bond will be called; generally this price equals or
somewhat exceeds the par value, or face value, of the bond.
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