An important difference between a floating-rate note and a fixed-rate note indexed to Libor is that
A)The return from holding a fixed-rate note over any holding period is deterministic and known because of the fixed coupon payments,whereas the similar return on a floating rate note is unknown because the coupon "floats."'
B)The price of the floating-rate note resets to par on each coupon/reset rate,whereas that of the fixed-rate note does not necessarily do so.
C)The price of the fixed-rate note is deterministic and known because the bond pays fixed coupons whereas the floating-rate note has a fluctuating price because it pays floating interest rates.
D)A fixed-rate note is always worth par at issue whereas the floating-rate note may not be.

Question

Quizplus · Accepted Answer

is invalid because the holding period return depends on the price at which the bond is sold and with fluctuating interest rates,this is uncertain for both floating-rate and fixed-rate notes;(c)is invalid because fluctuating interest rates can cause both bond prices to be stochastic;and (d)is wrong because whether a fixed-rate note is worth par at inception depends on the coupon size (i.e. ,whether the bond is a "par coupon" bond)whereas a floating rate noteis typically worth par at inception.

An Important Difference Between a Floating-Rate Note and a Fixed-Rate