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CFA Level I · CFA Level I Exam · Fixed-Income Markets for Corporate Issuers

A corporate borrower has a floating-rate syndicated term loan priced at the 3-month reference rate plus a 175 bp margin. If the reference rate resets from 2.10% to 2.60% at the next reset date, the loan's all-in interest rate for the next period is most likely:

The all-in rate is the reset reference rate plus the fixed margin: 2.60% plus 1.75% equals 4.35%. The margin stays constant while the reference rate changes at each reset, so the old 2.10% rate and the margin-free rate are both incorrect.

  1. A2.60%
  2. B4.35%
  3. C4.85%Correct

Explanation

The all-in rate equals the reference rate plus the quoted margin. After the reset it is 2.60% + 1.75% = 4.35%... checking the options: 2.60 + 1.75 = 4.35, so the key is 4.35%.

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