Leveraged Floater
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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. |
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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%). |
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