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Answer: 2.40%.
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%). - **Option B (2.55%)** is incorrect as it adds the margin to the average of the June and December reference rates, which is not the correct method for floating-rate notes. - **Option C (2.70%)** is incorrect because it adds the margin to the December reference rate, which is not the applicable rate for the December payment.
Author: LeetQuiz Editorial Team
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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%.
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