A $1000 par floating rate note pays a coupon rate of 180-day LIBOR plus a quoted margin of 1.5% semi-annually. Given that there is exactly 2 years to maturity, and the latest 180day LIBOR is 2.8%, and the discount margin is 1.0%, what is the value of the FRN at this point?

A $1000 par floating rate note pays a coupon rate of 180-day LIBOR plus a quoted margin of 1.5% semi-annually. Given that there is exactly 2 years to maturity, and the latest 180day LIBOR is 2.8%, and the discount margin is 1.0%, what is the value of the FRN at this point?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 10P

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

A $1000 par floating rate note pays a coupon rate of 180-day LIBOR plus a quoted

margin of 1.5% semi-annually. Given that there is exactly 2 years to maturity, and the

latest 180day LIBOR is 2.8%, and the discount margin is 1.0%, what is the value of the

FRN at this point?

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