Certainty to investors in the floating rate note

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Reference no: EM131296795

Consider the auction of 2-year Floating Rate Notes in July 2014. As we saw in class, the notes are priced at par and investors receive face value at maturity. Coupon interest payments are indexed to the 13-week T-bill and are made quarterly (October, January, April, July). The July 2014 13-week T-bill rate (known at the time of the auction) was 0.025% and the spread (determined at auction) was 0.070%.

Once the spread was determined at the auction, which cash flows were known with certainty to investors in the Floating Rate Note?

Given the 13-week T-bill rates in 2014, 2015, and 2016 below, what are the quarterly cash flows per $100 face value until maturity in July 2016?

Date/13-week T-bill Rate

July 2014 / 0.025%

October 2014 / 0.020%

January 2015/ 0.020%

April 2015/ 0.025%

July 2015 / 0.050%

October 2015 / 0.020%

January 2016 / 0.305%

April 2016 / 0.250%

July 2016 N/A

Reference no: EM131296795

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