Every Bond Is Issued with a Call Feature

question 88

Essay

Every bond is issued with a call feature. Explain what it means for a bond to be "called," then briefly describe the three most common types of call features. Also explain why investors suffer when bonds are called.

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Definitions:

Greenmail

A strategy where a company buys back its shares from a potential acquirer at a premium to avoid a takeover bid.

Hostile Takeover

The acquisition of one company by another without approval from the target company's management.

Market Price

The contemporary market cost for acquiring or disposing of assets or services.

Chapter 11 Bankruptcy

A legal process that allows businesses to reorganize under bankruptcy laws of the United States, enabling them to keep operating while restructuring their debts.