Your firm has just issued five-year floating-rate notes indexed to six-month U.S.dollar LIBOR plus 1/4 percent.What is the amount of the first coupon payment your firm will pay per U.S.$1,000 of face value,if six-month LIBOR is currently 7.2 percent?

Question

Quizplus · Accepted Answer

The calculation for the coupon payment is as follows:

Coupon payment = Face value x (LIBOR + spread) x (days in coupon period / 360)

In this case, the face value is $1,000, the LIBOR rate is 7.2% (0.072), the spread is 0.25% (0.0025), and the days in the coupon period is 180 (six months).

Coupon payment = $1,000 x (0.072 + 0.0025) x (180/360) = $18.625

Therefore, the amount of the first coupon payment is $18.625 per $1,000 of face value. Rounded to the nearest cent, this is $18.63, which is closest to option B ($37.25 for $2,000 face value).

Your Firm Has Just Issued Five-Year Floating-Rate Notes Indexed to Six-Month