FRN (floating rate note)

A floating rate note, often called an FRN or "floater", is a debt instrument that pays a floating interest rate. The interest rate is usually based on an accepted market benchmark rate such as LIBOR. Maturities at issue are usually in the three to five year range.

The value of FRNs is not as sensitive to interest rates as that of debt securities that pay fixed interest. This makes them less risky for an investor who may which to sell them.

From the point of view of an investor who wishes to secure a stable income and is willing to hold to maturity, FRNs are more risky.

As interest rates change in line with the risk free rate the present value of an FRN is fairly stable providing that its risk does not change (provided the issuer remains equally financially stable).

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