A floater (FRN) in which a higher coupon is paid should a particular reference rate is within a specific range composed of a lower and an upper boundary. The coupon payments are calculated based on the number of days during the preceding coupon period in which a reference rate was stuck to a pre-set range. If the reference rate remains within the range, the investor receives a much higher coupon than that of a comparable standard floater. However, if that rate slides outside the range, no interest accrues on the note. Range floaters provide an enhanced yield to investors who expect that rates will remain within a particular range. Maturities of range floaters are typically of 1 to 2 years.
A range floater is also known as a corridor floater or an accrual note.
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