Skip to content

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

Compared with a fixed-rate bond of the same maturity, a floating-rate note with a constant quoted margin most likely has price sensitivity to changes in the benchmark reference rate that is:

A floating-rate note is most likely less sensitive to benchmark rate changes. Its coupons reset to the new reference rate, which offsets the change in the discount rate, so price stays near par. A fixed-rate bond of the same maturity has fixed coupons and moves much more.

  1. Agreater, because coupons rise with the reference rate
  2. Bsimilar, because both have the same maturity
  3. Clower, because coupons reset to the new reference rateCorrect

Explanation

Resetting coupons track the reference rate, so a change in the benchmark mostly changes both the coupon and the discount rate, which offsets price effects. A fixed-rate bond has fixed coupons and reacts strongly. FRN price changes arise mainly from changes in the required discount margin.

Did you get it right without looking?

One question tells you little. A timed set on Yield and Yield Spread Measures for Floating-Rate Instruments shows your real accuracy, how long you take and where you lose marks.

Practise Yield and Yield Spread Measures for Floating-Rate InstrumentsFree diagnostic mock

More Yield and Yield Spread Measures for Floating-Rate Instruments questions