Which of the following describes a variable rate demand note?
A variable rate demand note is a debt instrument bearing a floating interest rate that allows an investor to put the stock back to a financial intermediary. A variable rate demand note is provided with liquidity funding from banks and other financial institutions with a high credit rating.
What is a demand note account?
A demand note is an informal loan without a fixed term or repayment schedule, that can be called in (demanded) at any point given requisite notice to the borrower. Due to their flexible nature, demand notes are common in informal lending between family and friends and often involve relatively small sums.
What is the variable demand?
A variable-rate demand note (VRDN) is a debt instrument that represents borrowed funds that are payable on demand and accrue interest based on a prevailing money market rate, such as the prime rate. A VRDN is also referred to as a variable rate demand obligation (VRDO).
What is a fixed note?
a fixed-rate note that has an interest rate that doesn’t fluctuate. The interest rate is tied to a short-term benchmark rate, such as LIBOR or the Fed funds rate, plus a quoted spread, or rate that holds steady.
Are demand notes current liabilities?
If a loan agreement contains a clause stating that the lender can demand payment at any time, then classify the debt as a current liability. This is the case even if there is no expectation that the lender will demand payment within the current year.
Are demand notes safe?
Unlike money market accounts at the local bank, GMAC Demand Notes are not FDIC insured. In fact, they are actually unsecured and unsubordinated debt obligations of GMAC LLC. Therefore, it is possible for investors to take a loss on their investment if GMAC is unable to pay its obligations.
What do variable rate demand notes do for your money?
Variable Rate Demand Notes (VRDNs) are variable rate securities issued by municipalities with features that help investors in money market funds meet their needs for liquidity, ﬂ exibility, and competitive short-term rates, particularly in this low yield environment.
How is the interest rate on a vrdn adjusted?
Typically, the interest rate on VRDN is adjusted daily, weekly, or monthly to reflect the current interest rate environment. As the name implies, variable rate demand notes are payable on demand as they have an embedded put option.
What kind of bond is a variable rate note?
A variable rate demand note (VRDN) is a long-term municipal bond which is offered to investors through money market funds.
How does a vrdn work in the secondary market?
The bonds tendered are then resold to the secondary market by a reseller agent or trustee. Typically, a VRDN includes a one or seven-day put option that allows investors to put the asset back to an agent to match the notice duration.