Issuer Credit Quality and FRNs
Fixed Income Securities: Defining Elements
(1) If the credit worthiness of the issuer of a 4-year Floating-Rate Note changes drastically in the 2nd year, should not the spread component of the FRN coupon rate (which is fixed at issuance) also be increased along with the yield on the note at that point in time?
(2) If yes, based on what scale should the coupon be increased? If not, does the increase in the spread component only occur when the issue is bought by another note-holder after the conclusion of the term with the current note-holder?
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