Calling all common stockholders! A callable common stock is one in which the issuer (or a third party) has the right to repurchase the stock after a certain period of time and at a specific price.
Let's say Phil Collins owns 150 shares of Call Me Uncommon Inc. They are callable at 107% of the current market price, which at the moment is $200 a share. So, Call Me Uncommon could force Phil to sell his shares back if the price hits $214. As the shares start to approach this level, the probability of the stock being called increases. It is doubtful the price of these callable stocks will go up much beyond the $200 price since everyone knows Call Me Uncommon will probably call the shares in.
Since there is some amount of risk of the shares being called, the Financial Industry Regulatory Authority (FINRA) requires that it be explicitly disclosed if a common stock is callable.
Related or Semi-related Video
Finance: What is Forced Conversion?58 Views
Finance allah shmoop what is forced conversion Okay this is
forced conversion Yeah this is also forced conversion and so's
this Yeah that is the issuer of this particular bond
Like the company who borrowed money has the right as
described in the indenture to force you to convert the
bond either into and say twenty five shares of common
stock or something else Which sort of implies that a
stock price the over under price of breaking evens about
forty bucks a share takes you get that thousand dollars
divided by the twenty five shares Think it's you forty
bucks a share or the issuer or company who sold
the bond in the first place can simply call the
bond and force converted into cash for the small conversion
premium of ah two point five percent or that's twenty
five bucks in this thousand dollars par value bond So
in this sense essentially the break even Numbers actually 41
dollars a share not forty there because you get an
extra little premium bump there if they force you to
convert the bond or debt into equity Got it We'll
force conversion in a bond sense is usually something cos
do when they can either refinance the bond at cheaper
interest rates or are doing so well operationally that they
have enough cash Teo just retire their debt They call
it back They buy it back save the interest charges
and quick cash toe work doing something else Either way
it's usually weigh less painful than the other flavour of 00:01:30.926 --> [endTime] forced conversion
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