Hi,
I came across a question asking the reason why an FRN would most likely trade at a discount. The answer given was that the next reset date in in 3 months. One of the other choice was that the floating rate includes a margin over LIBOR to compensate for the issue’s liquidity risk. Wouldn’t the latter answer also make sense? I understand that an FRN fluctuates between reset dates and that it could potentially trade at a discount, but the issue’s liquidity risk may also increase the required margin over the quoted margin and make the FRN trade at a discount.
Thank you!