Floating-rate bonds have adjustable rates to protect real rates of return against inflation. The rates paid are limited by:
A) The put provisions of the issues
B) A floor rate which sets the minimum
C) A cap rate which sets the maximum
D) B and C

Question

Quizplus · Accepted Answer

Floating-rate bonds typically have both a floor rate, which sets the minimum rate that can be paid, and a cap rate, which sets the maximum rate that can be paid. This ensures that the rates paid are adjustable to protect against inflation, but also remain within a certain range. Put provisions, which allow the bondholder to sell the bond back to the issuer at a certain price, are not directly related to the rates paid on floating-rate bonds. Therefore, options A and B are incorrect, leaving option D as the correct choice.

Floating-Rate Bonds Have Adjustable Rates to Protect Real Rates of Return