If the floor rate is 2.5 percent and dividends in the adjustable rate preferred rate stock are LIBOR plus 50bp, the dividend rate when the LIBOR is 1.75 percent is closest to:
A) 2.5 percent.
B) 3.0 percent.
C) 3.5 percent.
D) 6.5 percent.
E) 8.0 percent.

Question

Quizplus · Accepted Answer

The dividend rate is calculated as LIBOR (1.75%) plus 50 basis points (0.50%), which equals 2.25%. However, since the floor rate is 2.5%, the dividend rate cannot be lower than this, so the rate is 2.5%.

If the Floor Rate Is 2