Floating-Rate Bonds Have Adjustable Coupons to Protect Investors Against Changes

question 34

Multiple Choice

Floating-rate bonds have adjustable coupons to protect investors against changes in interest rates. The rates paid may be limited by

• A)the put provisions of the issue.
• B)a floor rate that sets the minimum.
• C)a cap rate that sets the maximum.
• D)both a floor rate that sets the minimum and a cap rate that sets the maximum.

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Definitions:

Yield

The income return on an investment, such as the interest or dividends received, typically expressed as an annual percentage rate based on the investment's cost, its current market value, or its face value.

Face Value

The nominal or dollar value stated on a security or financial instrument, such as a bond or stock.

Real Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing.

Inflation Rate

The rate that reflects how the overall prices of services and goods escalate, causing a reduction in the capacity to purchase.