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CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Floating-Rate Instruments

A floating-rate note (FRN) pays a coupon equal to a reference rate plus a fixed spread, reset at each coupon date. The quoted margin is best described as the:

The quoted margin is the fixed spread added to the reference rate to determine each FRN coupon. It is set at issuance and stays constant. The required margin, by contrast, changes with market credit conditions and is the spread investors demand when valuing the note.

  1. Afixed spread added to the reference rateCorrect
  2. Bdifference between the bond's yield and the reference rate at purchase
  3. Cpremium over par at which the note is issued

Explanation

The quoted margin is the fixed spread over the reference rate that is written into the FRN's terms and used to set each coupon. It does not change with market conditions. The second option describes the required (discount) margin, which can vary with credit conditions.

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