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Finance

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  • September 1, 2021
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Floating Rate Security

A financial security whose coupon rate is not fixed over its life. The coupon payments reset periodically according to a specific reference rate. The coupon rate at a reset date is given by the following formula:

Coupon rate = reference rate + quoted margin

For example, if the reference rate is the one-month LIBOR, and the quoted margin is 150 basis points, then the coupon rate would be:

Coupon rate = 1-month LIBOR + 150 basis points

Suppose the 1-month LIBOR rate on the coupon reset date is 4.7%, the coupon rate is reset for a respective period at 4.7%+ 1.5% = 6.2%.


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