Question

The coupon rate of a floating-rate note that makes payments in June and December is expressed as six-month Libor 25 bps. Assuming that the six-month Libor is 3.00% at the end of June 20XX and 3.50% at the end of December 20XX, the interest rate that applies to the payment due in December 20XX is:

Answer 1

Answer: 3.25%

Step-by-step explanation:

The interest rate that applies to the payment due in December 20XX will be the addition of the the six-month Libor which is 3.00% at the end of June 20XX and the coupon rate of a floating-rate note which is expressed as six-month Libor 25 bps.

Therefore, the answer will be:

= 3.00% + 0.25%

= 3.25%