Question

Floating rate bonds are Group of answer choices a sequence of small bond issues of progressively longer maturity. bonds with fixed interest payments. bonds with interest rates that change with current interest rates. short-term debt obligations that the U. S. government sells to financially stable companies to raise money.

Answer 1

Floating Rate Bonds are bonds with interest rates that change with current interest rates.

What are Floating Rate Bonds?

• Bonds with a floating interest rate, as opposed to traditional bonds, pay an interest rate that is variable and resets on a regular basis.
• The federal funds rate or the London Interbank Offered Rate (LIBOR) plus an additional "spread" are typically the bases for the rates.
• LIBOR is a benchmark rate that banks use for making short-term loans to other banks, much like the federal funds rate.

• For example, if a rate is stated as "LIBOR + 0.50 percent," the rate would be 1.50 percent if LIBOR were at 1.00 percent. The yield varies over the security's lifetime as current interest rates vary, but the spread (+0.50) often doesn't.

Floating rate bonds offer potential benefits to investors by providing variable interest, which is set by a coupon rate that fluctuates in line with the market interest rate.

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