If the floor rate is 2.5 percent and dividends in the adjustable rate preferred rate stock are LIBOR plus 50bp, the dividend rate when the LIBOR is 3 percent is closest to:
A) 2.5 percent.
B) 3.0 percent.
C) 3.5 percent.
D) 6.5 percent.
E) 8.0 percent.

Question

Quizplus · Accepted Answer

The dividend rate is calculated as LIBOR plus 50 basis points (bp). Given LIBOR is 3 percent, adding 50bp (or 0.5 percent) gives a total of 3.5 percent. The floor rate does not apply here since the calculated rate is above the floor.

If the Floor Rate Is 2