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Premium. The amount by which a security sells above
its par value. If an investor buys a $1000 bond for $1,030, he or she has paid a
premium of $30.
Maturity. The length of time before the principal
amount of a bond is due to the bondholders. It is the time until a bond may be
surrendered to its issuer. Also called term-to-maturity.
Maturity date. The date on which a bond is to be
redeemed and its principal and interest returned to the owner.
Callability. The feature of some bonds whereby the
issuer can redeem them before they mature. Issuers often call their bonds when
interest rates are falling and they want to replace high-yielding bonds with
lower-yielding bonds. Call provisions must be made clear before a bond is sold.
A bond with this feature is a callable bond.
Call price. The price at which a callable bond will
be redeemed from bondholders. The call price is often greater than the bond's
face value because the issuer may add a premium to compensate the bondholder for
lost interest payments.
Convertibility. The option of exchanging a bond for
a specified amount of stock. Bonds with this feature are called convertible
bonds. They give the investor the option to convert the bond into the
issuing company's stock. Conversion must occur at specified times, specified
prices and under specified conditions, all set down in writing at the time of
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