Floating rate loan is a type of bond which has a variable interest rate, which is calculated as a fixed percentage over a benchmark rate of interest. The interest rate on floating rate note changes in sync with the benchmark rate of interest. So for example if a floating rate note carries a spread of 1 percent over the benchmark rate of interest and benchmark rate of interest is 10 percent then floating rate note will have 11 percent rate of interest. Given below are some of the features of floating rate note –
1. Floating rate note are issued at the face value.
2. The interest rate of floating rate loan is fixed as a percentage over a benchmark rate. The benchmark rate may be a bank rate, Treasury bill rate, LIBOR rate etc…..
3. Floating rate note can have many variations like it can be issued as Perpetual Notes, Variable Rate Notes, Capped floating rate note, Floored floating rate note etc…
4. The interest payment on floating rate note is made on half yearly basis.