Consider a five-year floating rate loan with principal of $10 million and quarterly payments based on the three-month bbalibor rate.Suppose the bbalibor rates are 0.01 for the first three years and 0.02 for the last two years.What is the value of the floating rate loan on its first quarterly payment date?

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The value of a floating rate loan on its first quarterly payment date is equal to its principal amount because the interest rate adjustments ensure that the loan's value reflects current market conditions. Since the loan's interest rate adjusts with the bbalibor rate, it remains at par value ($10 million) on the payment date.

Consider a Five-Year Floating Rate Loan with Principal of $10