Understanding VRDOs: The Importance of Fixed Maturity Date in Making Them Short-Term Securities

Which of the following features of VRDOs effectively make them short-term securities?Call featurePut featureFixed maturity dateInterest-rate cap

Put featureVariable rate demand obligations (VRDO) are payable on demand. These securities are set up with a put feature which allows investors to redeem at certain intervals. VRDOs also have a variable interest rate that’s reset periodically.

Fixed maturity date is the feature of VRDOs that effectively makes them short-term securities.

Variable Rate Demand Obligations (VRDOs) are securities that have variable interest rates and are backed by a bank or other financial institution. These securities are typically issued with a fixed maturity date, meaning that they will mature and be paid off in full on a specific date in the future.

The fixed maturity date of VRDOs is what makes them short-term securities. Since they will mature and be paid off in full within a relatively short period of time, usually one year or less, they are considered short-term securities.

The other features of VRDOs, such as the call feature, put feature, and interest-rate cap, do not necessarily make them short-term securities. For example, the call feature allows the issuer to redeem the VRDOs before their maturity date, which could shorten their duration, but does not make them inherently short-term securities.

In summary, the fixed maturity date feature of VRDOs effectively makes them short-term securities as they mature and are paid off in full within a relatively short period of time.

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