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What is callable stock?

Author:
Harold Averkamp, CPA, MBA

Callable stock is an ownership interest (shares) in a corporation that can be “called in” by the corporation at a specified price.

For example, a corporation might issue 9% $100 Preferred Stock. The stock agreement (indenture) states that the stock is callable by the corporation after three years at $109 per share plus any accrued interest. If in the fourth year, market rates decline to say 7%, the corporation can call in the preferred stock by paying the call price of $109 plus any accrued interest.

The callable feature allows the corporation to get out of the preferred stock agreement requiring it to pay the $9 per share dividend. In turn, the stockholders will be deprived of receiving the $9 dividend in a 7% market. The call price has the effect of limiting how high the market value of preferred stock will rise.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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