Deleveraged Floater
 |
Definition of 'Deleveraged Floater'A fixed-income instrument with a floating coupon rate that is a product of the reference interest rate, or index, and a leverage factor of less than one, plus a fixed margin. The deleveraged floater gets its name from the fact that its coupon rate is a fraction of the reference interest rate. If the leverage factor is greater than one, the instrument would be a leveraged floater. The reference rate used for such floaters is usually a widely referenced benchmark such as LIBOR, treasury rate or the federal funds rate. |
 |
Investopedia explains 'Deleveraged Floater'The coupon rate for a deleveraged floater is calculated as follows:(Reference Interest Rate x Leverage Factor) + Fixed Margin. As an example, consider a deleveraged floater with quarterly coupon payments based on the federal funds rate and a leverage factor of 0.6, with a margin of 1%. At the time of the first coupon payment, if the federal funds rate is 4%, the coupon rate on this deleveraged floater would be 3.4%. If the federal funds rate is 3% at the time of the next coupon reset, the coupon rate would now be 2.8%. |
Related Definitions
Articles Of Interest
-
Currency Exchange: Floating Rate Vs. Fixed Rate
Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers. -
Consider Prime Rate Funds For More Income
These funds may give you the reliable stream of income you need when you're retired. -
Dual And Multiple Exchange Rates 101
Why would a country choose to implement dual or multiple exchange rates? It's risky, but it can work. -
Floating-Rate Mutual Funds: Rewards And Risks
In an economy with low interest rates, investors need to get creative in order to reap high returns. -
How Leverage Is Used In Forex Trading
Forex trading by retail investors has grown by leaps and bounds in recent years, thanks to the proliferation of online trading platforms and the availability of cheap credit. The use of leverage ... -
What Is Spread Betting?
The temptation and perils of being over leveraged is a major pitfall of spread betting. However, the low capital outlay necessary, risk management tools available and tax benefits make spread ... -
Leverage: What It Is And How It Works
Leverage is an investment strategy of using borrowed money to generate outsized investment returns. Before getting into greater detail on how leverage works in an investment context, it is useful ... -
The Basics of Forex Leveraging
A closer look at the controversial topic of leverage in forex trading. -
The Basics Of The T-Bill
The U.S. government has two primary methods of raising capital. One is by taxing individuals, businesses, trusts and estates; and the other is by issuing fixed-income securities that are backed ... -
Introduction To Commercial Paper
Commercial paper is a short-term instrument that can be a viable alternative for retail fixed-income investors looking for a better rate of return on their money.
Free Annual Reports