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Finance Glossary

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Call Risk

Definition:

A call risk is the risk that your brokerage or the issuer of your bond will redeem or call the bond before its maturity. If this happens, you could lose out.

If you were supposed to get an 8% coupon for 10 years, but after 2 years the bond is called, you possibly lose eight years of profits from the bond. If interest rates go down, you also have the option of selling your bond at a higher rate (since investors will want to buy a bond with a higher interest rate and therefore more money being made). If a bond is called, you lose out on the chance to sell that bond at a profit.