lawman
Thinks s/he gets paid by the post
If I buy a callable bond and the bond is called am I guaranteed to get my principal back or can it be redeemed for less than I paid causing me to lose money?
If I buy a callable bond and the bond is called am I guaranteed to get my principal back or can it be redeemed for less than I paid causing me to lose money?
You will get the stated value if the bond. If you bought a $10,000 bond and it is called, you will get $10,000 and any accumulated dividends.
So if i paid $1100.00 for a $1000.00 bond and it is called soon after buying it I would lose $100.00.....correct??
Except for default is there ever a time when a bondholder would collect LESS than the yield to worst?Yes in most cases you lose $100.
However, some not all callable bonds have provisions such as "make-whole call". A make-whole call provision is a type of call provision on a bond allowing the issuer to pay off remaining debt early. The issuer typically has to make a lump-sum payment to the investor. The payment is derived from a formula based on the net present value (NPV) of previously scheduled coupon payments and the principal that the investor would have received. This sometimes helps offset the capital loss if you buy a callable bond with this provision over par value.
Except for default is there ever a time when a bondholder would collect LESS than the yield to worst?