A company without default risk has issued a perpetual Eurodollar FRN at LIBOR. The coupon is paid and reset semiannually. It is certain that the issuer will never have default risk, and will always be able to borrow at LIBOR. The FRN is issued on March 1, 2002, when the six-month LIBOR is at 5%. The Eurodollar yield curve on September 1, 2002, and December 1, 2002, is as follows.
$$\begin{array}{l}

\begin{array} { l l l }
&\text { September } 1,2002\% &\text { De Decmber } 1,2002 \%\
\hline \text { Manth } & 4.25 & 4.00 \
3 \text { Manths } & 4.50 & 4.25 \
6 \text { Manths } & 4.75 & 4.50 \
12 \text { Manths } & 5.00 & 4.75
\end{array}
\end{array}$$ a. What is the coupon paid on September 1, 2002, per $1,000 FRN?
b. What is the new value of the coupon set on the FRN on September 1, 2002?
c. What is the new value and clean price of the FRN on December 1, 2002?

Question

A company without default risk has issued a perpetual Eurodollar FRN at LIBOR. The coupon is paid and reset semiannually. It is certain that the issuer will never have default risk, and will always be able to borrow at LIBOR. The FRN is issued on March 1, 2002, when the six-month LIBOR is at 5%. The Eurodollar yield curve on September 1, 2002, and December 1, 2002, is as follows.
 $$\begin{array}{l}

\begin{array} { l l l } 
&\text { September } 1,2002\% &\text { De Decmber } 1,2002 \%\
\hline \text { Manth } & 4.25 & 4.00 \
3 \text { Manths } & 4.50 & 4.25 \
6 \text { Manths } & 4.75 & 4.50 \
12 \text { Manths } & 5.00 & 4.75
\end{array}
\end{array}$$ a. What is the coupon paid on September 1, 2002, per $1,000 FRN?
b. What is the new value of the coupon set on the FRN on September 1, 2002?
c. What is the new value and clean price of the FRN on December 1, 2002?

Quizplus · Accepted Answer

The Answer of A company without default risk has issued a perpetual Eurodollar FRN at LIBOR. The coupon is paid and reset semiannually. It is certain that the issuer will never have default risk, and will always be able to borrow at LIBOR. The FRN is issued on March 1, 2002, when the six-month LIBOR is at 5%. The Eurodollar yield curve on September 1, 2002, and December 1, 2002, is as follows.
 $$\begin{array}{l}

\begin{array} { l l l } 
&\text { September } 1,2002\% &\text { De Decmber } 1,2002 \%\
\hline \text { Manth } & 4.25 & 4.00 \
3 \text { Manths } & 4.50 & 4.25 \
6 \text { Manths } & 4.75 & 4.50 \
12 \text { Manths } & 5.00 & 4.75
\end{array}
\end{array}$$ a. What is the coupon paid on September 1, 2002, per $1,000 FRN?
b. What is the new value of the coupon set on the FRN on September 1, 2002?
c. What is the new value and clean price of the FRN on December 1, 2002?

A Company Without Default Risk Has Issued a Perpetual Eurodollar