Arizona State University (ASU) FIN 300 Fundamentals of Finance Exam 2 Practice Test

In bonds, when a bond is callable, the issuer may redeem it before its maturity and must pay more than just the face value to do so. This extra amount is the compensation to the investor for ending the contract early and for the lost future interest. That premium above the par value is called the call premium. So CIP stands for Call Premium, the extra paid over the par value when a bond is called. The other terms aren’t standard in bond terminology for this concept—they don’t describe the additional amount paid to exercise a call.