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

question 34

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.

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Definitions:

Anxiety Construct

A psychological framework or model representing the various aspects and manifestations of anxiety as a mental health condition.

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The extent to which a test measures all aspects of the concept or construct it is intended to assess.

Cronbach's Alpha

A measure of internal consistency or reliability of the items in a test or questionnaire, indicating how closely related the items are as a group.

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