Wang, 2007, "Why Firms Issue Callable
Bonds: Hedging Investment Uncertainty," University of Texas Working Paper.
As postulated by Taggart and Bodie (1978) and Barnea, Hauge, and Senbet (1980), risk incentive agency costs can be reduced by issuing callable
bonds because the call option value (i.e., stockholders' wealth) declines as management shifts to riskier projects that reduce firm value.
The 2016 bond, callable
after four years, is priced at par to pay a yield of 12 percent.
The numbers in parentheses are subscriptions to MDB callable
On January 1, 2008, Company X chooses to hedge its fixed-rate callable
debt with a fixed-rate receive, variable-rate pay, interest-rate swap.
The perpetual notes will be senior unsecured debt obligations of Gol and have no fixed final maturity date, but will be callable
at par after five years.
Advance refunding occurs when issuers refinance outstanding bonds before the original bonds mature or are callable
to achieve interest rate savings and to extinguish old debt.
where k and CF are defined as above, [r.sub.0.sup.c] is the current callable
risk-free rate with the maturity of the final cash flow of the project, and [r.sub.0] is the current duration-matched non-callable risk-free rate.
(NYSE: HAL), which pay 6% interest and will mature in 2006; preferred stocks, such as Sears (NYSE: S) preferred, which pay 7% interest and are callable
in October 2003; and Equity Residential Properties (NYSE: EQR), which pay about 8% interest and can be called in October 2005.
New features in version 4.4 include faster, more efficient Cluster Table organization, a new "Select for Update" feature that controls the behavior of concurrent access to data, user callable
temporary tables, derived tables in the FROM clause and improved localization capabilities.
Louis for its marketing and sale of callable
certificates of deposit.
The following section will discuss how the value (and yield) of a callable
bond differs from a noncallable bond.