An Important Difference Between a Floating-Rate Note and a Fixed-Rate

question 3

Multiple Choice

An important difference between a floating-rate note and a fixed-rate note indexed to Libor is that

• A)The return from holding a fixed-rate note over any holding period is deterministic and known because of the fixed coupon payments,whereas the similar return on a floating rate note is unknown because the coupon "floats."'
• B)The price of the floating-rate note resets to par on each coupon/reset rate,whereas that of the fixed-rate note does not necessarily do so.
• C)The price of the fixed-rate note is deterministic and known because the bond pays fixed coupons whereas the floating-rate note has a fluctuating price because it pays floating interest rates.
• D)A fixed-rate note is always worth par at issue whereas the floating-rate note may not be.

Analyze the relationship between the price of output and the rental price of capital equipment.

Understand the effects of a change in the market price of goods on labor demand and wages.

Understand the effects of changes in wages on the supply and demand for labor and other factors of production.

Grasp the concept of the demand curve for capital and how it reflects the marginal productivity of capital.

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Definitions:

Present Value

The current evaluation of a forthcoming cash amount or cash flow series, considering a specific rate of financial return.

Land Rent

Land rent is the payment made for the use of a piece of land, representing the value derived from its use.

Interest Payments

The payments made periodically by a borrower to a lender as compensation for the use of borrowed funds.

Interest Rates

The percentage of a sum of money charged for its use, determining the cost of borrowing money or the return on invested capital.