call premium

(noun)

the additional cost paid by the issuer for the right to buy back the bond at a predtermined price at a certain time in the future

Related Terms

  • internal rate of return
  • quote

Examples of call premium in the following topics:

  • Redeeming Before Maturity

    • Redemption is made at the face value of the bond unless it occurs before maturity, in which case the bond is bought back at a premium to compensate for lost interest.
    • The issuer has the right to redeem the bond at any time, although the earlier the redemption takes place, the higher the premium usually is.
    • Some bonds give the issuer the right to repay the bond before the maturity date on the call dates.
    • With some bonds, the issuer has to pay a premium, the so-called call premium.
  • Options Contract

    • Option holders must pay a fee, called the option premium.
    • If the spot market price rises, subsequently, the option's premium for a European call option increases while the premium decreases for the put option.
    • If the strike price increases, then the option's premium for a European call option decreases while the premium increases for a put option.
    • Consequently, the option issuer charges a greater option premium for both calls and puts.
    • Thus, this investor would not exercise the call option, but a speculator would earn a loss, which equals the premium.
  • The Term Structure

    • The expectation hypothesis of the term structure of interest rates is the proposition that the long-term rate is determined by the market's expectation for the short-term rate plus a constant risk premium.
    • This is called the term premium or the liquidity premium.
    • This premium compensates investors for the added risk of having their money tied up for a longer period, including the greater price uncertainty.
    • Because of the term premium, long-term bond yields tend to be higher than short-term yields, and the yield curve slopes upward.
    • Long-term yields are also higher not just because of the liquidity premium, but also because of the risk premium added by the risk of default from holding a security over the long-term.
  • Demanding a Premium

    • Firms can engage in premium pricing by keeping the price of their good artificially higher than the benchmark price.
    • A premium pricing strategy involves setting the price of a product higher than similar products .
    • This strategy is sometimes also called skim pricing because it is an attempt to "skim the cream" off the top of the market.
    • It is also called image pricing or prestige pricing.
    • Luxury has a psychological association with price premium pricing.
  • Chapter Questions

    • You are holding 10 call options for petroleum with a strike price of $75 per barrel.
    • Option premium equals $0.5 per barrel, and each contract specified a quantity of 1,000 barrels.
    • Compute the premium, and whether you will exercise this option if the market price is $50 per barrel?
    • Strike price of corn equals $5 per bushel; the option premium is $0.01 per bushel, and each contract specified a quantity of 100 bushels.
    • Calculate the farmer's premium, and whether he will exercise this option if the market price of corn equals $6 per bushel?
  • The Yield Curve

    • The expectation hypothesis of the term structure of interest rates is the proposition that the long-term rate is determined by the market's expectation for the short-term rate plus a constant risk premium.
    • The liquidity premium theory asserts that long-term interest rates not only reflect investors' assumptions about future interest rates, but also include a premium for holding long-term bonds (investors prefer short term bonds to long term bonds), called the term premium or the liquidity premium.
    • This premium compensates investors for the added risk of having their money tied up for a longer period, including the greater price uncertainty.
    • Because of the term premium, long-term bond yields tend to be higher than short-term yields, and the yield curve slopes upward.
    • Long term yields are also higher not just because of the liquidity premium, but also because of the risk premium added by the risk of default from holding a security over the long term.
  • Default Risk and Bond Price

    • Then economists can plot the term structure, called the yield curve.
    • Economists call the difference between the interest rate on the U.S. government bonds and corporate bonds the default risk premium.Investors add default risk premium to a risk-free investment, so they can invest in "risky" bonds because they earn a greater return.
    • Risk premium is always positive.
    • As the default risk increases, then the risk premium increases too.
    • Impact of a risk premium on the bond markets
  • Gender Inequality in Health Care

    • Gender discrimination in health care manifests itself primarily as the difference that men and women pay for their insurance premium.
    • Women statistically pay far higher premiums than men.
    • Fewer than ten state governments prohibit gender discrimination in insurance premiums.
    • Under the Patient Protection and Affordable Care Act (informally called "Obamacare"), passed under President Barack Obama in 2010, insurance companies would be prohibited from charging men and women differently.
    • Whereas services for male reproductive health, such as Viagra, are considered to be a standard part of health care, women's reproductive health services are called into question.
  • Premiums

    • Premiums are prizes, gifts, or other special offers consumer receive when purchasing products.
    • Another form of consumer sales promotion is the premium.
    • In the United States, each year over $4.5 billion is spent on premiums.
    • Premiums fall into one of two categories: free premiums which only require the purchase of the product and self-liquidating premiums which require consumers to pay all, or some, of the price of the premium.
    • In-or On-package Premiums are usually small gifts, such as toys in cereal boxes.
  • The Freemium Model

    • Feature Limited - set number of features with basic- to get better cooler features move to premium
    • This service/software is usually a basic, scaled down version of what the company offers as a premium paid service.
    • In fact, the concept of a smaller giveaway to attract a premium customer is not new.
    • Feature Limited - set number of features with basic- to get better cooler features move to premium
    • In a May 25, 2009 New York Times article " Ad Revenue on the Web No Sure Bet", author Claire Cain Miller talks about the movement of many web companies away from ad-only models towards what she calls the most popular among Web start-up--freemium based models.
Subjects
  • Accounting
  • Algebra
  • Art History
  • Biology
  • Business
  • Calculus
  • Chemistry
  • Communications
  • Economics
  • Finance
  • Management
  • Marketing
  • Microbiology
  • Physics
  • Physiology
  • Political Science
  • Psychology
  • Sociology
  • Statistics
  • U.S. History
  • World History
  • Writing

Except where noted, content and user contributions on this site are licensed under CC BY-SA 4.0 with attribution required.