Explanation:
The correct answer is A (2.40%) because the applicable interest rate in December is calculated by adding the 45 basis point margin to the six-month market reference rate from June (1.95% + 0.45% = 2.40%).
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A floating-rate note with semiannual interest payments has a coupon rate equal to the six-month market reference rate plus 45 basis points. The payments occur in June and December. Given the six-month market reference rates of 1.95% in June and 2.25% in December of the same year, the coupon rate paid in December of that year is closest to:
A
2.40%.
B
2.55%.
C
2.70%.