What is a Bond Call Price?

A bond call price is the contractually-mandated price at which a bond holder must sell a bond back to the issuer. This call price is stated in the bond indenture, which may also state the date range within which a bond can be called. Outside of this date range, the issuer cannot buy back its bonds. The bond issuer usually triggers the call option when interest rates decline; this presents an opportunity for the issuer to replace the bonds with ones that have a lower interest rate.

Characteristics of a Bond Call Price

The main characteristics of the bond call price concept are as follows:

Premium above face value. The call price is often higher than the bond's face (par) value to compensate bondholders for the potential loss of future interest payments. The premium typically decreases as the bond approaches maturity.
Specified in the bond indenture. The call price and the terms of the call provision are outlined in the bond's indenture or prospectus at issuance.
Linked to a call schedule. If a bond is callable, the call price might vary based on a predetermined schedule. For example, the price might start at 105% of par and decrease over time to 100% of par as the bond nears maturity.
Call protection period. Most callable bonds have a call protection period during which the issuer cannot redeem the bond. After this period, the call price may apply.

Example of a Bond Call Price

ABC International issues a bond that contains a requirement for the issuer to pay 108% of the par value of a bond if it calls the bond. It originally sold the bonds at a face amount of $1,000, so exercising the call price feature would require it to pay $1,080 to each bond holder in exchange for the outstanding bond.