Callable Bonds

Quick question - might be stupid as well

If a bond is callable at par, how can the market value of the bond be more than 100 (the par value)

Wouldn’t it called away by the issuer?

It might trade above par before the call is exercisable, but once it’s exercisable, it won’t trade above par. At least in theory.

OK makes sense.

I do that occasionally. Usually by accident.

Hey guys,

I have a similar problem with question #26 of reading 36 (bonds with embedded options). The questions asks to calculate the market price of a bond “callable at par without any lockout period”. The result is 100.4578. I understand how this price is calculated but not why anyone in the market would pay more than par.

What am I missing here? Thx a lot in advance!

Presumably it cannot be called for one year (not until the first coupon date), and its coupon rate is above the 1-year forward/spot/par rate; think of it as a 1-year bond with a coupon of 1.55% and a YTM of 1.0%: it’ll trade (slightly) above par.

If it could be called today, then it would trade at par.

Makes sense, thank you very much!!