A com pain without default risk has issued a perpetual dollar FRN at LIBOR. The coupon is paid and reset semiannually. It is certain that the issuer will never have default risk and will always be able to borrow at LIBOR. The FRN is issued on March 1, 2007, when the six-month LIBOR is at 5 percent. The dollar yield curve on September 1, 2007, and December 1, 2007, is as follows:

a. What is the coupon paid on September 1, 2007, per $1,000 FRN?
b. What is the new value of tin coupon set on the FRN on September 1, 2007?
c. What is the new value of the FRN on December 1, 2007?

Transcribed Image Text:

September 1, 2007 December 1, 2007 One month Three months Six months Twelve months 4.25 4.50 4.75 5.00 4.00 4.25 4.50 4.75