A Five-Year $1,000 Face Value Floating-Rate Note (FRN)has Coupons Referenced

question 25

Multiple Choice

A five-year $1,000 face value floating-rate note (FRN) has coupons referenced to six-month dollar LIBOR,and pays coupon interest semiannually.Assume that the last six-month LIBOR was 6.5 percent and the current six-month LIBOR is 6 percent.If the risk premium above LIBOR that the issuer must pay is 0.25%,by how much did the coupon payment change?

• A) increase by $2.5
• B) decrease by $2.5
• C) increase by $5
• D) decrease by $5

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