The price at which a bond can be bought back, or redeemed, by the issuing company, generally at a premium to the bond's par value . For instance, suppose Ford Motor Co. issued callable bonds with an 8.5 percent coupon rate three years ago with a provision allowing it to call the bonds at a price of 105 beginning this month. This means that Ford has the right to buy back the bonds at a five percent premium. Companies sell callable bonds in exchange for future flexibility to replace high-interest debt if interest rates decline. In order to compensate investors for the risk that their bonds will be called, the issuing company pays a premium to call them in the future.
Capital gains A gain in price on a financial asset such as a stock, bond or mutual fund.
The amount of the gain is the difference between current price and cost basis. The cost basis is generally the purchase price of the asset. See capital gains taxes. Capital gains taxes Levies on profits earned on the sale of capital assets such as stocks, bonds and real estate. Gains on capital assets held for less than one year are taxed as ordinary income.