Fixed Income Q13

0. The coupon rate of a floating- rate note is six-month Libor + 50 bps. It makes payments in June and December. The six-month Libor was 4.00% at the end of June 2014 and 4.50% at the end of December 2014. The interest rate used to calculate the payment due in December 2014 is:

Answer
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Option : A
Explanation : The interest rate that should be used to calculate the payment due in December 2014 is the six-month Libor at the beginning of the period (i.e. the end of June 2014) plus 50 bps. Thus, it is 4.50% (4.00% + 0.50%).

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