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Learn about the following:
How floating rate notes work. Why they are bought and sold. Simple methods of evaluation. The risks FRNs present to investors.
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1.How FRNs work
2. Issuing and investing in floating rate notes
3. Evaluating floating rate notes
4. FRNs & risk
4th March 2010
Introduction A bond is a long term debt obligation. It is sold by the borrower who is called the "issuer" in order to borrow money for the medium and long term. Typically a bond will have a maturity of between 2 and 20 years. The issuer can be a bank, company or government institution. A bond normally has a known maturity or redemption date and during its life pays the investor interest. The interest payments are called "coupons". Bond investors rank prior to equity holders in liquidation but are subordinate to secured lenders. From an issuer's perspective the coupons are usually tax deductible (unlike dividend payments on equity). Bond markets provide investors with variety. One of the most frequently issued bonds is called a floating rate note.
20th September 2009
Floating rate notes (FRNs) are bonds that pay investors a regular coupon linked to short term interest rates like three or six month Libor. This can suit the investor and issuer alike. The cost of issuance is key to the borrower. Discounts to par value and margins must be taken into account. Find out more about the all in cost.
Learn about the following: How credit linked notes work. Why issuers and investors use credit linked notes. The main risks related to credit linked notes