An FRN (floating-rate note) is a bond that pays a quarterly or semiannual coupon indexed on a short-term interest rate such as the LIBOR. (7 points)

(a) Why does it make sense to use a short-term interest rate as the index?

(b) Why are banks heavy issuers of FRNs?

Answer rating: 100% (QA)

a FRNs tend to useful when there is a expectation of interest rates increasing Wrt fixedrate deb... View the full answer