With a floating-rate note, the interest rate on the note changes
A) when the prime rate changes.
B) when the risk level of the borrower changes.
C) when the demand for loans changes.
D) when bank profits change.

Question

Quizplus · Accepted Answer

Floating-rate notes typically have interest rates that are tied to an underlying benchmark such as the prime rate, LIBOR, or the Treasury rate. Therefore, the interest rate on the note changes when the benchmark rate changes. The risk level of the borrower, demand for loans, and bank profits do not directly affect the interest rate on a floating-rate note.

With a Floating-Rate Note, the Interest Rate on the Note