BROWSE

Variable Rate Demand Bond

What is 'Variable Rate Demand Bond'

A bond with floating coupon payments that are adjusted at specific intervals. The bond is payable to the bondholder upon demand following an interest rate change. Generally, the current money market rate is what is used to set the interest rate, plus or minus a set percentage. As a result of this, the coupon payments can change over time.

Explaining 'Variable Rate Demand Bond'

Although a demand bond can be redeemed at any time, bondholders are often encouraged to keep the bonds in order to continue receiving coupon payments. The floating rate of the coupon payment contributes to higher uncertainty in coupon cash flows compared to generic bonds. Some of this risk is mitigated by the redemption option.


Further Reading


An analysis of variable rate loan contracts
www.jstor.org [PDF]
… analytical solutions and numerical results we require a specific model for the state variables … When variable rate notes were first introduced in 1974, they were usually redeemable at … More recently, floating rate notes have guaranteed a minimum rate of interest payment-either …

Bond Rate, Loan Rate and Tobin's Bond Rate, Loan Rate and Tobin's
onlinelibrary.wiley.com [PDF]
… analytical solutions and numerical results we require a specific model for the state variables … When variable rate notes were first introduced in 1974, they were usually redeemable at … More recently, floating rate notes have guaranteed a minimum rate of interest payment-either …

The bond yield'conundrum'from a macro-finance perspectiveThe bond yield'conundrum'from a macro-finance perspective
papers.ssrn.com [PDF]
… analytical solutions and numerical results we require a specific model for the state variables … When variable rate notes were first introduced in 1974, they were usually redeemable at … More recently, floating rate notes have guaranteed a minimum rate of interest payment-either …

Financial flow variables and the short-run determination of long-term interest ratesFinancial flow variables and the short-run determination of long-term interest rates
www.journals.uchicago.edu [PDF]
… analytical solutions and numerical results we require a specific model for the state variables … When variable rate notes were first introduced in 1974, they were usually redeemable at … More recently, floating rate notes have guaranteed a minimum rate of interest payment-either …

Modeling bond yields in finance and macroeconomicsModeling bond yields in finance and macroeconomics
pubs.aeaweb.org [PDF]
… analytical solutions and numerical results we require a specific model for the state variables … When variable rate notes were first introduced in 1974, they were usually redeemable at … More recently, floating rate notes have guaranteed a minimum rate of interest payment-either …

Bond insurance and liquidity provision: Impacts in the municipal variable rate debt market, 2008-09Bond insurance and liquidity provision: Impacts in the municipal variable rate debt market, 2008-09
journals.sagepub.com [PDF]
… analytical solutions and numerical results we require a specific model for the state variables … When variable rate notes were first introduced in 1974, they were usually redeemable at … More recently, floating rate notes have guaranteed a minimum rate of interest payment-either …

The decision to rate or not to rate: the case of municipal bondsThe decision to rate or not to rate: the case of municipal bonds
www.sciencedirect.com [PDF]
… analytical solutions and numerical results we require a specific model for the state variables … When variable rate notes were first introduced in 1974, they were usually redeemable at … More recently, floating rate notes have guaranteed a minimum rate of interest payment-either …

Financing the response to climate change: The pricing and ownership of US green bondsFinancing the response to climate change: The pricing and ownership of US green bonds
www.nber.org [PDF]
… analytical solutions and numerical results we require a specific model for the state variables … When variable rate notes were first introduced in 1974, they were usually redeemable at … More recently, floating rate notes have guaranteed a minimum rate of interest payment-either …



Q&A About Variable Rate Demand Bond


How do you set the interest rate on a variable rate demand bond?

You use current money market rates plus or minus a set percentage to determine the interest rate.

What does "generally" mean in this context?

It means usually, but not always.

What is a variable rate demand bond?

A variable rate demand bond is a type of bond with floating coupon payments that are adjusted at specific intervals.

What happens if you don't keep your bonds in order to continue receiving coupon payments?

You will no longer receive any coupon payments.

Who can redeem the bonds?

The owner of the bond can redeem it.