A company without default risk can issue a perpetual 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 November 1, 2005, when the six-month LIBOR is at 4.5%. On May 1, 2006, the six-month LIBOR is at 5%.
a. What is the coupon paid on May 1, 2006, per $1,000 bond?
b. What is the new value of the coupon set on the bond?
c. On May 2, 2006, the six-month LIBOR has dropped to 4.9%. What is the new value of the FRN?

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The Answer of A company without default risk can issue a perpetual 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 November 1, 2005, when the six-month LIBOR is at 4.5%. On May 1, 2006, the six-month LIBOR is at 5%.
a. What is the coupon paid on May 1, 2006, per $1,000 bond?
b. What is the new value of the coupon set on the bond?
c. On May 2, 2006, the six-month LIBOR has dropped to 4.9%. What is the new value of the FRN?

A Company Without Default Risk Can Issue a Perpetual FRN