Question
p.197 - Chapter 5 - top of the page Question on floating debt and investors: Floating rate debt is popular with investors who are worried
p.197 - Chapter 5 - top of the page
Question on floating debt and investors:
"Floating rate debt is popular with investors who are worried about the risk of rising interest rates, because the interest paid on such bonds increases whenever market rates rise. This stabilizes the market value of the debt, and it also provides institutional buyers, such as banks, with income that is better geared to their own obligations."
Investors refer to people holding the bond, so why would they be worried by rising interest rates? That's more money they get every 6 months.
Logic of bonds:
Microdrive issues bond for $1000 -> An person buys the bond for $1000 (par value) -> paid interest every 6 months (coupon payment) to a person -> at the very end, $1000 is paid back (the prinicipal).
A person in this case is the investor. Explaination would be appreciated.
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