Leveraged Floater

AAA

DEFINITION of 'Leveraged Floater'

A security, generally a bond, which has a leverage factor of greater than one and a fixed margin with a variable coupon rate, which is tied to a benchmark interest rate or index. Generally speaking, the benchmark interest rate or index is well-known and widely quoted, i.e., the federal funds rate, treasury rate or LIBOR. A leveraged floater security has a coupon rate that increases or decreases by an amount greater than the benchmark rate or index it is associated with.

INVESTOPEDIA EXPLAINS 'Leveraged Floater'

The formula for figuring out the coupon rate of a leveraged floater is as follows:

Benchmark Interest Rate x Leverage Factor + Fixed Margin.

This is the same formula used to find the coupon rate of a deleveraged floater (only the leverage factor distinguishes one from the other). Hence, if one were to use the treasury rate standing at, say, 0.2%, a leverage factor of 1.3 and a margin of 1%, the coupon rate would be 1.26% (0.2% x 1.3 + 1%).

RELATED TERMS
  1. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  2. Floating-Rate Note - FRN

    A note with a variable interest rate. The interest rate is usually ...
  3. Super Floater

    A floating-rate collateralized mortgage obligation (CMO) tranche ...
  4. Reverse Floater

    A floating-rate note in which the coupon rises when the underlying ...
  5. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  6. Inverse Floater

    A bond or other type of debt whose coupon rate has an inverse ...
Related Articles
  1. Fundamental Analysis

    What is Gearing?

    Gearing, also called leverage, is the degree to which a company’s operations are funded by lenders versus shareholders.
  2. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  3. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  4. Stock Analysis

    Is Prospect Capital Exposed To Elevated Losses?

    According to a federal government report, the quality of leveraged loans has begun to deteriorate. Prospect Capital specializes in these types of loans.
  5. Mutual Funds & ETFs

    Buying ETFs on Margin Versus Leveraged ETFs

    Leveraged ETFs and investing in an ETF on margin both have their advantages and disadvantages.
  6. Investing

    Ready To Invest In Financial Leverage Funds?

    Whenever you invest in a leveraged financial fund or are thinking about doing so, it's important to know the risks that could weigh on its returns.
  7. Brokers

    Arbitrage Opportunities in Spread Betting

    While the opportunities are few and far between, investors may use arbitrage to take advantage of price differences in financial spread betting.
  8. Brokers

    The Exciting World Of The Top Spread Betting Brokers

    Spread betting can be fun, but it's risky and you will want a reliable broker. Here are the top spread betting brokers.
  9. Technical Indicators

    How To Use Technical Indicators To Master Financial Spread Betting

    As a popular tool of investing in the United Kingdom, spread betting encompasses the buying or selling of an underlying asset when a strike price is met.
  10. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center