Definition
Floating rate bonds have variable coupon payments that reset periodically based on a benchmark rate like SOFR plus a spread. They offer protection against rising interest rates because payments increase as rates rise. This makes them attractive when rate increases are expected.
Formula
Coupon Rate = Reference Rate + Spread
Example
A floating rate note paying SOFR + 1%. If SOFR is 4%, the coupon is 5%. If SOFR rises to 5%, the coupon becomes 6%.
FAQ
What is Floating Rate Bond?
A bond with interest payments that adjust based on a reference rate.
How do you calculate Floating Rate Bond?
A common formula for Floating Rate Bond is: Coupon Rate = Reference Rate + Spread
Why is Floating Rate Bond important?
Floating Rate Bond helps investors evaluate fixed income and make more informed decisions.