FRN - Coupon Rate

CFA Level I Fixed Income
#1

Hello All,

I am really lost with this one.

A company issues FRN with a coupon-rate equal to 3-month LIBOR + 65bps. Interest payments are made quarterly on 31March, 30June,30 Sept, 31 Dec. On 31 March and 30 June, 3-month LIBOR is 1.55% and 1.35% resp. The coupon rate for interest payment on 30 June =?

OA = 2.2%

Here’s what I did:

Coupon for 30 June = {(3-month LIBOR of 31 March) + 65bps}/4. I am dividing by 4 because payments are made quarterly.

=(1.55% + .65%)/4 = 0.55%

It seems that OA doesn’t like the denominator I have used. Is there anything wrong with it?

Please help me.

Thanks in advance.

#2

Interest rates are always quoted annually.

Always.

1.55% + 0.65% = 2.20%

#3

Thank you S2000magician!

#4

My pleasure.