Fixed Income Q32
- Option : B
- Explanation : The coupon payments on a floating-rate bond that is tied to the six-month Libor will reset every six months, based on changes in Libor. Thus, as Libor increases, so will the coupon payments. A is incorrect because the spread on a floating-rate bond is typically constant; it is set when the bond is issued and does not change afterward. C is incorrect because the issuer’s credit quality affects the spread and thus the coupon rate that serves as the basis for the calculation of the coupon payments, but only when the spread is see that is, at issuance.
