call risk

Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.

Call Risk

A risk that a callable bond will be repaid early and that the money earned may not be able to be reinvested in a security with a comparable return. Suppose one invests in a callable bond with coupon payments of 4%. However, interest rates fall and the issuer calls the bond and pays the par value. The investor may make a profit, but now he/she may only purchase a bond with a coupon of 2.5%. Most callable bonds include call periods in the indenture, protecting the bondholder from this risk for a certain period of time. Call risk is one of the most common kinds of reinvestment risk.

call risk

See prepayment risk.

单词	call risk
释义	call risk Call risk The combination of cash flow uncertainty and reinvestment risk introduced by a call provision. Call Risk A risk that a callable bond will be repaid early and that the money earned may not be able to be reinvested in a security with a comparable return. Suppose one invests in a callable bond with coupon payments of 4%. However, interest rates fall and the issuer calls the bond and pays the par value. The investor may make a profit, but now he/she may only purchase a bond with a coupon of 2.5%. Most callable bonds include call periods in the indenture, protecting the bondholder from this risk for a certain period of time. Call risk is one of the most common kinds of reinvestment risk. call risk See prepayment risk.
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