A corporation rated AA issues a five-year FRN Eurobond in euros on November 1, 2005. The coupon is paid quarterly and is equal to euro-LIBOR plus a spread of ½ %. On November 1, the three-month euro LIBOR is at 4%. The issuer remains rated at AA during the life of the bond.
a. Three months later (February 1, 2006), the three-month euro-LIBOR has moved to 4.5%, and the market-required spread for AA borrowers has remained at ½ %. What should the value of the bond on reset date be?
b. Three months later (May 1, 2006), the three-month euro-LIBOR is still at 4.5%, but the market-required spread for AA borrowers has increased to ¾%. Give some estimation of the new value of the FRN on the reset date.

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The Answer of A corporation rated AA issues a five-year FRN Eurobond in euros on November 1, 2005. The coupon is paid quarterly and is equal to euro-LIBOR plus a spread of ½ %. On November 1, the three-month euro LIBOR is at 4%. The issuer remains rated at AA during the life of the bond.
a. Three months later (February 1, 2006), the three-month euro-LIBOR has moved to 4.5%, and the market-required spread for AA borrowers has remained at ½ %. What should the value of the bond on reset date be?
b. Three months later (May 1, 2006), the three-month euro-LIBOR is still at 4.5%, but the market-required spread for AA borrowers has increased to ¾%. Give some estimation of the new value of the FRN on the reset date.

A Corporation Rated AA Issues a Five-Year FRN Eurobond in Euros