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Call price

The call price is the price at which a security such as a bond or preferred share may be repurchased by the issuer.

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Expanded Definition

When a company issues security in the form or shares or debt (bonds), the company can set a number of conditions upon the security. This includes voting rights, interest rates, dividend payments, and the ability to repurchase the security at some time in the future. This last is called a call option. That is, the issuer can "call" the security away from the purchasers and back to itself.

The price to be paid to the purchasers upon exercise of this option is known as the "call price."

An example

Suppose that company ABC issues 2,500,000 preferred shares with a face value of $100, paying a dividend of 7%, and callable at $110. That "$110" is the call price.

What this means is that the company will receive $250 million ($100 per share) when it sells these. Each year, it would owe the purchasers $17,500,000 in dividends which it would, presumably, pay out of its profits for the year. But if the company no longer wishes to pay the dividends, it can repurchase those preferred shares by paying $275 million ($110 per share), "calling" the shares back to itself.

A similar situation can be set up with a bond, but in that case, instead of dividends, it would be paying interest. It would only do this if it could refinance (reissue) the bond at a lower interest rate.

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