A floating coupon rate is an advantage to the bond issuer during periods of increasing interest rates.

Question

Quizplus · Accepted Answer

A floating coupon rate allows the bond's interest rate to adjust with the market interest rate. During periods of increasing interest rates, the coupon rate on a floating-rate bond will also increase. This is an advantage to the bondholder, as they will receive a higher yield. However, for the bond issuer, it is a disadvantage as they will have to pay a higher interest rate to the bondholder, which increases their borrowing costs. Therefore, a floating coupon rate is not an advantage to the bond issuer during periods of increasing interest rates.

A Floating Coupon Rate Is an Advantage to the Bond