Could anyone explain how the Call Price Based on Market Whole Premium works ?
I think what you mean is the ‘make whole’ call price. Basically the make whole provision determines the call price in a manner that ensures that the investor is ‘made whole’ of appropriately compensated if a bond is called. This would require that the call price equal the NPV (at current market interest rates) of future payments from the bond. You might find this link helpful: http://www.investopedia.com/terms/m/make-wholecall.asp
I would think Call Price Based on Market Whole Premiums have a lot to do with amortizing securities (mortgage pass-through securities, CMOs, etc) rather than any other security… this would happen when the originator wants to buy back a loan for poor underwriting standards…the loan has to be purchased in whole.
What I could make out was that the call price is based on a prespecified formula & the investopedia link further specifies this . Thank you both for your inputs but @bizzies4bankers couldn’t get the poor underwriting standards part.
The make-whole amount is a penalty, essentially, that the issuer has to pay to compensate the investor from reinvestment risk