A five-year Floating-rate note (FRN)has coupons referenced to six-month dollar LIBOR,and pays coupon interest semiannually.Assume that the current six-month LIBOR is 6 percent.If the risk premium above LIBOR that the issuer must pay is 1/8 percent,the next period's coupon rate on a $1,000 face value FRN will be:
A) $29.375.
B) $30.000.
C) $30.625.
D) $61.250.

Question

Quizplus · Accepted Answer

Coupon rate = 0.5 × (LIBOR + risk premium percent) × $1,000= 0.5 × (0.06 + 0.00125) × $1,000 = $30.625

A Five-Year Floating-Rate Note (FRN)has Coupons Referenced to Six-Month Dollar