# Schweser notes seems wrong

Floating-Rate Note Yields:

EXAMPLE: Valuation of a floating-rate note
A \$100,000 floating rate note is based on 180-day LIBOR (the reference rate) with a quoted margin of 120
basis points. On a reset date with 5 years remaining to maturity, 180-day LIBOR is quoted as 3.0%
(annualized) and the discount margin (based on the issuer’s current credit rating) is 4.5% (annualized).
What is the market value of the floating rate note?
The current annualized coupon rate on the note is 3.0% + 1.2% = 4.2%, so the next semiannual coupon
payment will be 4.2% / 2 = 2.1% of face value. The required return in the market (discount margin) as an
effective 180-day discount rate is 4.5% / 2 = 2.25%.
Using a face value of 100%, 10 coupon payments of 2.1%, and a discount rate per period of 2.25%, we can
calculate the present value of the floating rate note as:
N = 10; I/Y = 2.25%; FV = 100; PMT = 2.1; CPT PV = 98.67
The current value of the note is 98.67% of its face value, or \$98,670.

my thought: According to CFA book, the I/Y should be the reference rate+ Discount margin. so should be (3%+4.5%)/2=3.75%

Below from CFA book:

where:

PV = present value, or the price of the floating-rate note = 97

Index = reference rate, stated as an annual percentage rate = 0.01

QM = quoted margin, stated as an annual percentage rate = 0.0080

FV = future value paid at maturity, or the par value of the bond = 100

m = periodicity of the floating-rate note, the number of payment periods per year = 2

DM = discount margin, the required margin stated as an annual percentage rate

Could anybody explain this?

Schwewer’s solution is correct. The discount margin as given includes all your estimates and is 4.5%