HomeCFACFA Level 1CFA Level 1 | Fixed Income: Calculating the Price of a Floating Rate Note (FRN)

CFA Level 1 | Fixed Income: Calculating the Price of a Floating Rate Note (FRN)

  • May 5, 2020
  • Posted by: Fabian Moa, CFA, FRM, CTP, AFM, FMVA, FSA Credential
  • Categories: CFA, CFA Level 1
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CFA Level 1

Topic: Fixed Income

Reading: Introduction to Fixed-Income Valuation

 

A floating-rate note (FRN) or a floater pays interest, that is reset after every payment. For the CFA Level 1 syllabus, the valuation of FRN assumes that the benchmark rate is constant and it uses 30/360 day convention.

1) If the quoted margin (QM) is greater than the discount margin (DM), then the FRN price will be greater than par.

2) If the quoted margin (QM) is equals to the discount margin (DM), then the FRN price will be equals to par.

3) If the quoted margin (QM) is less than the discount margin (DM), then the FRN price will be less than par.

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