Suppose that the coupon rate of a floating-rate security resets every six months at a spread of

Question:

Suppose that the coupon rate of a floating-rate security resets every six months at a spread of 70 basis points over the reference rate. If the bond is trading at below par value, explain whether the discount margin is greater than or less than 70 basis points.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...