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

Question

Quizplus · Accepted Answer

The interest rate on a floating-rate note is tied to a benchmark interest rate, such as the prime rate, and will change when that rate changes. Changes in the risk level of the borrower, demand for loans, or bank profits typically do not directly impact the interest rate on a floating-rate note.

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