Closet_Gamer
Thinks s/he gets paid by the post
I'm continuing my fixed income education and I am really struggling with the math of Make Whole Calls, particularly for bonds trading below par.
Consider this bond quoted by Schwab:
CUSIP: 71654QCK6
BBB Rated
Price: $87.00
Coupon: 5.35%
Maturity: 2/12/2028
MWC Continuous
YTM: 9.1%
YTW: -- %
Current Yield: 6.1% (5.35% / $87)
Set aside the credit worthiness, just trying to understand the math. Let's also assume that the price of the bond holds at $87. (Unlikely but just trying to simplify.)
Let's say the Bond is called in February of 2026.
In Feb of 2026, I would have four payments left of $5.35.
The PAR on the bond would be $100.
When they made the call, would I then receive:
$100 (PAR) + (4 x $5.35 - time discount) = ~$120?
Is that right?
Absent a precipitous drop in a rates, struggling to understand why any company would really make the call? Seems like they are just accelerating their payments including most of the interest. Even if they could refinance at 2%, would they really benefit given that they paid out all the future interest anyways?
Thanks for any insight.
Consider this bond quoted by Schwab:
CUSIP: 71654QCK6
BBB Rated
Price: $87.00
Coupon: 5.35%
Maturity: 2/12/2028
MWC Continuous
YTM: 9.1%
YTW: -- %
Current Yield: 6.1% (5.35% / $87)
Set aside the credit worthiness, just trying to understand the math. Let's also assume that the price of the bond holds at $87. (Unlikely but just trying to simplify.)
Let's say the Bond is called in February of 2026.
In Feb of 2026, I would have four payments left of $5.35.
The PAR on the bond would be $100.
When they made the call, would I then receive:
$100 (PAR) + (4 x $5.35 - time discount) = ~$120?
Is that right?
Absent a precipitous drop in a rates, struggling to understand why any company would really make the call? Seems like they are just accelerating their payments including most of the interest. Even if they could refinance at 2%, would they really benefit given that they paid out all the future interest anyways?
Thanks for any insight.