Investors often buy bonds and preferred stock for a steady stream of fixed interest and dividend payments. But in some cases, the party might end early. If these investments are designated as “callable,” a company has the right to call them -- or buy them back from you -- before they mature. If this happens, a company typically pays you a call premium, which is extra money above the investment’s face value. This premium is like a consolation prize for missing out on your future interest payments. You can calculate an investment’s call premium using information from a company’s annual report.
Download a company’s most recent annual report on Form 10-K from the investor relations section of its website or from the U.S. Securities and Exchange Commission’s online EDGAR database.
Locate the section in the notes to its financial statements that discusses its callable bonds or callable preferred stock, depending on which call premium you want to calculate.
Find the investment’s par -- or face -- value, which is the amount the company pays on the investment’s maturity date if it doesn’t call it early. Also find the investment’s call price, which is typically expressed as a percentage of face value. For example, assume a company’s callable bonds have a $1,000 face value and a call price that’s 105 percent of face value.
Divide the call price percentage by 100 to convert it to a decimal. Multiply your result by the face value to calculate the call price as a dollar amount. This is the total amount you receive per bond if the company calls them. In this example, divide 105 percent by 100 to get 1.05. Multiply 1.05 by $1,000 to get a call price of $1,050.
Subtract the face value from the call price to calculate the call premium. Concluding the example, subtract $1,000 from $1,050 to get a call premium of $50. You get an extra $50 above face value per bond if the company calls its bonds.
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