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

The crucial difference between a floating-rate note and a fixed-rate note indexed to Libor is that the return from holding a fixed-rate note over any holding period is deterministic and known because of the fixed coupon payments, whereas the corresponding return on a floating rate note is unknown because the coupon "floats."

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