Examples of floating-rate bond in the following topics:
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- Floating rate bonds are bonds that have a variable coupon equal to a money market reference rate (e.g., LIBOR), plus a quoted spread.
- Floating rate bonds (FRBs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a quoted spread (i.e., quoted margin).
- There are many variations of floating-rate bonds.
- FRBs can also be obtained synthetically by the combination of a fixed rate bond and an interest rate swap.
- Thus, FRBs differ from fixed rate bonds, whose prices decline when market rates rise.
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- Fixed rate bonds have a coupon that remains constant throughout the life of the bond.
- Floating rate notes (FRNs, floaters) have a variable coupon that is linked to a reference rate of interest, such as LIBOR or Euribor.
- It is one type of floating rate bond.
- The interest rate is normally lower than for fixed rate bonds, with a comparable maturity.
- Therefore, subordinated bonds usually have a lower credit rating than senior bonds.
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- In finance, a bond is an instrument of indebtedness of the bond issuer to the holders.
- Most individuals who want to own bonds do so through bond funds.
- Bonds are often liquid.
- There are also a variety of bonds to fit different needs of investors, including fixed rated bonds, floating rate bonds, zero coupon bonds, convertible bonds, and inflation linked bonds.
- A bond is an instrument of indebtedness of the bond issuer to the holders.
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- Usually this rate is fixed throughout the life of the bond.
- Based on different coupon rates, bonds are classified into many types.
- Fixed-rate bonds have a coupon that remains constant throughout the life of the bond.
- Floating rate notes (FRNs, floaters) have a variable coupon that is linked to a reference rate of interest, such as LIBOR or Euribor.
- The interest rate is normally lower than for fixed rate bonds with a comparable maturity.
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- Most corporate bonds are fixed-rate bonds, meaning that the interest rate stays the same until maturity.
- Some use floating rates to determine the exact interest rate paid to bond holders.
- The interest rate paid on these varies depending on some index, such as LIBOR.
- The interest that the firm will pay ultimately comes down to one factor: at what rate will investors believe the bonds are a good investment?
- Indicators for riskiness can include individual credit histories (for a bank loan) or bond rating by a credit rating company (for corporate bonds).
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- A government bond is a bond issued by a national government denominated in the country's domestic currency.
- There are two types of interest rates: fixed and floating.
- At the secondary market, each bond will be assigned with very own bond code (ISIN code).
- Secondly, there is inflation risk, in that the principal repaid at maturity will have less purchasing power than anticipated if the inflation rate is higher than expected.
- Many governments issue inflation-indexed bonds, which protect investors against inflation risk by increasing the interest rate given to the investor as the inflation rate of the economy increases.
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- Taxes can cause bond prices and interest rates to differ.
- Consequently, bond market prices have the same market price, P* and pay identical interest rates.
- Thus, investors are attracted to municipal bonds, boosting their demand, increasing the market price and decreasing the market interest rate.
- On the other hand, the taxed bonds are not as attractive as an investment, so investors buy fewer bonds, causing bond prices to fall and interest rates to rise.
- Therefore, municipal bonds have a lower interest rate than U.S. government bonds.
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- The cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the expected growth rate.
- The growth rate is expected to be 3%..
- Similar to bonds, preferred stocks are rated by the major credit rating companies.
- Sometimes, dividends on preferred shares may be negotiated as floating - they may change according to a benchmark interest rate index.
- The cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the growth rate.
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- The credit rating is a financial indicator assigned by credit rating agencies; bond ratings below BBB-/Baa are considered junk bonds.
- Bond ratings below BBB-/Baa are considered to be not investment grade and are colloquially called "junk bonds. "
- Moody's assigns bond credit ratings of Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C, with WR and NR as withdrawn and not rated.
- Bonds that are not rated as investment-grade bonds are known as high-yield bonds or more derisively as junk bonds.
- Bond ratings below BBB-/Baa are considered to be not investment grade and are colloquially called "junk bonds
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- Information costs influence the bond prices and interest rates.
- We include these costs in the bond's market price and interest rate, and they raise the cost of borrowing.
- The equilibrium bond prices are identical for both markets and equal P* and the interest rates would be equal.
- High information cost bonds are not as attractive as an investment, so investors buy fewer bonds, reducing bond prices and raising interest rates.
- Therefore, low-information-cost bonds pay a lower interest rate.