In: Finance
A one-year floating-rate note pays 6-month Libor plus 112 bps. The floater is priced at 98.83 per 100 of par value. The current 6-month Libor is 1.88%. Assume a 30/360 day-count convention and evenly spaced periods. What is the annual discount margin for the floater in basis points? THE ANSWER MUST BE 232.7. Please show me the work on excel. Thank you!
Coupon rate on floating rate = 1.88% +1%(As basis points of 100 taken 1%) = 2.88%
Yield to maturity on floting rate nore can be obtained :
((Coupon amount +(face value of bond - bond price)/No of years to maturity on floating rate note)/((face value of bond+Bond price)/2)
= ((2.88% of 100)+(100-98.83))/2/(100+98.83)/2
= ((2.88+(1.17/2 )/99.415
=(3.465)/99.415
= 0.03485 or 3.48%
Discount margin = 3.48% - 1.88 % = 1.6%
Discount margin on floater = 1.60 *100 = 160 basis points