Election Period

What Is an Election Period?

An election period is a period during which an investor who claims a extendable or retractable bond, or the issuer of those bonds, must show whether they will exercise their option to broaden or retract those bonds.

An extendable bond is a long-term debt security that incorporates an option to stretch its maturity period. On the other hand, A retractable bond is a one that includes an option for the holder to force the issuer to cover the bond before its maturity at par value.

An election period may likewise allude to the time period when a person might pursue Medicare or different benefits.

Figuring out Election Periods

An election period can shift in duration from just half a month or months up to the whole life of the original bond issue. Ordinarily, a bondholder requires some degree of advanced notice in the event that a bond issuer means to expand the maturity of the loan.

Investors must know about when the election period opens and closes for their holdings. The prospectus will incorporate the schedule of this period. A prospectus is a legal document that gives insights concerning the investment and is required by the Securities and Exchange Commission (SEC).

Extendable Bond Election Periods

For instance, let's say that a group real estate investors buy an office building for $10 million, by putting down $1 million of their own cash, and borrowing the other $9 million from the bank at 3% interest north of a decade.

The investors, plan, in any case, is to sell the building a long time before the loan is due in light of the fact that they anticipate that property values in this location should rise rapidly. So they choose to take out an interest-only note, wherein the principal is due in one lump-sum toward the finish of 10 years. However, to hedge their wagers, they ensure that their loan is extendable by somewhere in the range of one and three years, just in case the property doesn't appreciate as fast as they anticipate.

The bank consents to make the loan extendable, yet to make up for the additional risk, the investors will pay 4% interest in the 11th year, 5% interest in the twelfth, and 6% interest in the thirteenth. Following 13 years, the principal is due, without any extensions permitted.

In this scenario, there are three distinct election periods, during the twelfth month of the 10th, 11th, and twelfth years, separately. The real estate investors are given one month to let the bank know whether they plan to broaden the bond one more year.

Retractable Bonds Election Periods

Companies sometimes choose to sell retractable bonds to investors. There the holder has the option to demand full repayment before maturity, at least one predetermined dates.

Investors like retractable bonds since they offer protection during times of rising interest rates. On the off chance that rates rise, the investors have the option of retracting the bond and giving another one at a higher interest rate.

Companies might choose to issue retractable bonds since they can receive better terms from lenders. Lenders give ideal terms in exchange for assuming the interest-rate risk. In such a scenario, there would be an election period in the lending agreement during which the lender would need to let the borrower know whether it has chosen to retract the bond.

Features

• The broad term "election period" may likewise allude to the time period when a person might pursue Medicare or different benefits.
• An election period is a period during which an investor in an extendable or retractable bond must demonstrate on the off chance that they will exercise their option to broaden or retract.
• An election period can fluctuate in duration from just half a month or months up to the whole life of the original bond issue.
• A bond's prospectus will incorporate the schedule of its election period.