Floating Rate Notes Behave Differently in Response to Interest Rate

question 59

Multiple Choice

Floating rate notes behave differently in response to interest rate risk than straight fixed-rate bonds.

• A)True since FRNs experience only mild price changes between reset dates, over which time the next period's coupon payment is fixed (assuming, of course, that the reference rate corresponds to the market rate applicable to the issuer).
• B)False since all bonds experience an inverse price change when the market rate of interest changes.
• C)None of the above

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Definitions:

Attraction-Similarity Hypothesis

A theory suggesting that people are attracted to others who are similar to themselves in terms of attitudes, values, and interests.

Altruism

The practice of selflessly caring for the welfare of others, often at a cost to oneself.

Fundamental Attribution Error

The assumption that others act predominantly on the basis of their dispositions, even when there is evidence suggesting the importance of their situations.

Dispositions

Inherent qualities of mind and character that influence an individual's habitual responses and behavior.