The Purpose of a Floating-Rate Bond Is To

question 65

Multiple Choice

The purpose of a floating-rate bond is to:

• A) save interest expense for corporate issuers.
• B) avoid making interest payments until maturity.
• C) shift the yield curve.
• D) offer rates that adjust to current market conditions.

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Definitions:

Junk Bond

A high-yield bond with a lower credit rating than investment-grade bonds, reflecting higher risk.

Annual Interest

Interest calculated or paid once per year on a loan or investment, based on the initial principal or on the amount outstanding.

Call Provision

A provision in a bond or similar fixed-income instrument that permits the issuer to pay off the principal ahead of its maturity date.

Issuer

An entity that develops, registers, and sells securities for the purpose of financing its operations.