pricingFRN {bondAnalyst} | R Documentation |

Calculates Price of a Floating-Rate Note (FRN).

```
pricingFRN(estRtrn, t, mv, maturityPeriod, estDisc)
```

`estRtrn` |
A vector. |

`t` |
A vector. |

`mv` |
A number. |

`maturityPeriod` |
A number. |

`estDisc` |
A number. |

Floating-rate notes are very different from a fixed-rate bond. The interest payments on a floating rate note, which often is called a floater or an FRN, are not fixed. Instead, they vary from period to period depending on the current level of a reference interest rate. The interest payments could go up or down; that is why they `“`

float.`"`

In principle, a floater has a stable price even in a period of volatile interest rates. With a traditional fixed-income security, interest rate volatility affects the price because the future cash flows are constant. With a floating rate note, interest rate volatility affects future interest payments. The valuation of a floating rate note needs a pricing model. Suppose that the yield spread required by investors is 40 bps over the reference rate, DM = 0.0040. The assumed discount rate per period is 0.825 percent. For N = 4, the FRN is priced at 100.196 per 100 of par value. This floater is priced at a premium above par value because the quoted margin is greater than the discount margin (Adams & Smith, 2019).
Based on the information provided, the method `pricingFRN()`

is developed to compute Price of a Floating-Rate Note (FRN) for the values passed to its five arguments. Here, `estRtrn`

is a vector of estimated returns on FRN (this does not include repayment of the principal), `t`

is a vector of number of years ranging from 1 to any specified number of periods, `mv`

represents Maturity Value, `maturityPeriod`

is number of evenly spaced periods to maturity, and `estDisc`

is assumed discount rate per period. The given examples show various ways in which the arguments can be passed to `pricingFRN()`

.

Input values to five arguments `estRtrn`

,`t`

, `mv`

, `maturityPeriod`

, and `estDisc`

.

MaheshP Kumar, maheshparamjitkumar@gmail.com

Adams,J.F. & Smith,D.J.(2019). Introduction to fixed-income valuation. In CFA Program Curriculum 2020 Level I Volumes 1-6. (Vol. 5, pp. 107-151). Wiley Professional Development (P&T). ISBN 9781119593577, https://bookshelf.vitalsource.com/books/9781119593577

```
pricingFRN(estRtrn=c(0.875,0.875,0.875,0.875),t=c(1,2,3,4),mv=100,maturityPeriod=4,estDisc=0.00825)
pricingFRN(estRtrn=c(0.875,0.875,0.875,0.875),t=c(1:4),mv=100,maturityPeriod=4,estDisc=0.00825)
pricingFRN(estRtrn=c(rep(0.875,4)), t=c(1:4),mv=100,maturityPeriod=4,estDisc=0.00825)
pricingFRN(c(rep(0.875,4)), c(1:4),100,4,0.00825)
```

[Package *bondAnalyst* version 1.0.1 Index]