Four provisions change the schedule, and all four are read off the document as dates, prices and formulas. Their value is a separate exercise that requires a rate lattice, and FI1.04 owns it. What follows is what the document says and what cash actually changes hands.
What are call and put schedules?
A call schedule gives the issuer the right to redeem early on stated dates at stated prices. A lockout period precedes the first call date, so a bond callable annually at par after three years is described as non-call three. American corporate schedules often decline toward par (102, then 101, then 100.5, then 100), while agency structures and most Indian corporate calls are at par. The document also says whether the call is for the whole issue or in part, and whether partial calls are allocated by lot or pro rata, which decides whether a particular holder is redeemed at all.
A put schedule gives the holder the right to sell the bond back on stated dates at stated prices. It is common in Indian corporate issuance, often paired with a call on the same date. That pair is an effective maturity rather than an option in either direction. If the issuer will call whenever it is cheap and the holder will put whenever it is dear, the bond's economic life ends on that date under most paths.
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What are conversion terms and sinking funds?
Conversion terms turn a bond into equity at a stated ratio or price, sometimes at the holder's option and sometimes on a trigger. The conversion ratio, the conversion price, any reset mechanism and the anti-dilution adjustments are all contract terms, and the conversion price divided into the face value is the number of shares.
A sinking fund obliges the issuer to retire principal on a schedule before maturity. Retirement is either by open-market purchase or by a par call by lot, at the issuer's choice, which is itself a small option: if the bonds trade below par the issuer buys them, and if they trade above par it calls them. The effect on the investor is an average life shorter than the stated maturity. A $300m issue that retires $50m in each of years three to six and $100m at year seven has an average life of 5.33333333 years against a stated maturity of seven, and the whole of that shortening is contractual.
How does a make-whole call work?
A make-whole call is a call whose price is a formula rather than a number. The issuer may redeem at any time, but must pay the greater of par and the present value of the remaining scheduled interest and principal, discounted at a stated reference government yield plus a stated spread, usually a small one. The discount rate in the formula is deliberately below the bond's own market yield, because it omits the issuer's credit spread, so the make-whole price is above the bond's market value and the call is expensive to exercise. Worked Example 5 does the arithmetic on a US utility's notes. At a reference Treasury of 3.90% plus 25 basis points the make-whole price is 104.9210912177 per 100 against a market value of 102.8740433271, so calling costs the issuer $10,235,239.45 more than the notes are worth.
A make-whole clause is a permission rather than a plan.
One thing the formula does not do is what its name suggests. It makes the holder whole against the government curve, not against their own credit-adjusted alternative, and if the reference yield has risen far enough the present value falls below par, the par floor binds, and the holder is redeemed at 100 on a bond they would rather have kept. At a reference Treasury of 6.00% plus 25 basis points, the present value of the same remaining cash flows is 95.7619781172, so the redemption price is exactly 100.