Fixed Income Q12
12Carla owns a floating rate note. Interest payments for the note are to be made on a semiannual basis with the second payment due in December 2013. The agreed upon coupon rate is six-month LIBOR + 30 bps. The table below shows the six-month LIBOR rates for the year 2013:
| Date | Six-month LIBOR |
| January 1, 2013 | 5.0% |
| June 30, 2013 | 5.5% |
| December 31, 2013 | 6.0% |
Which of the following is most likely to be the applicable interest rate for the
second payment?
- Option : B
- Explanation : The applicable interest rate for the second payment due in December is the six month LIBOR at the end of June 2013 plus 30 bps. Therefore, 5.5% + 0.3% = 5.8%.
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