Bond Selection

A "make-whole" call allows the issuer of a bond to pay off the bond early. The payment to the bondholder is based on the net present value of the future payments remaining on the bond (Investopedia, 2012). This provision does not necessarily make the investors whole. The investors receive the net present value of the future payments on the bond. For the investor, the discount rate used to calculate the net present value should be the same rate at which the investor can re-invest those funds with the same risk level. In many cases, however, the discount rate used for the NPV payment would either be written into the provision, or would be determined by the bond issuer. Thus, the discount rate could be a higher or lower than the reinvestment rate of the investor. So while there is no guarantee that this provision would fail to make...
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