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Bond Put Options
From the investor's viewpoint, Demand Bonds have a maturity equal to the "put" period (the put period is the period of time for which the interest rate on the bond is fixed, and during which the investor cannot demand immediate purchase of the bonds). Consequently, Demand Bonds bear short-term interest rates. From the borrower's viewpoint, Demand Bonds may be booked as long or short term liabilities, depending on the structure of the letter of credit Interest rate reset periods ("modes") are as follows:
- Daily
Can be put at any time. Interest is adjusted daily, payable monthly. Bonds are callable at par on 30 days notice.
- Weekly
Can be put on seven days notice; interest is adjusted weekly, payable monthly. Bonds are callable at par on 30 days notice.
- Commercial Paper
Can be put at the end of the mode. Interest modes may be set from 1 to 360 days. Interest is set for the duration of the commercial paper period. Bonds are callable at par at the end of the period.
- Adjustable
Interest rate is set for 6 months or any integral multiple thereof to the final maturity of the bonds; interest is payable semiannually, optional call provisions are flexible.
- Fixed Rate
Interest rate is fixed to the maturity of the bonds; interest is payable semiannually, bonds are callable after 10 years with a premium of 2%, declining to par after 2 years.
Andrew Hamilton
Executive Director
Upper Illinois River Valley Development Authority
100 West Lafayette Street
Ottawa, Illinois 61350
Toll Free: (866) 325-7525