The floating rate bond is a type of bond that pays a variable amount of interest depending on the interest rates in the market. This type of bond present investors with a way to get around some of the age-old problems with traditional bonds. Here are a few things to consider about the floating rate bond and how it could benefit you as an investor.

Interest Rate Risk

One of the main problems with traditional bonds is that they are subject to interest rate risk. When interest rates go up in the market, the value of bonds traditionally goes down. When interest rates lower, then the values go up. With a floating rate bond, this is no longer an issue. The bond pays a variable rate of interest that depends on the prevailing interest rates in the market. Therefore, the value of the bond remains constant throughout the term.

Holding Until Maturity

If you plan on holding your bond until it matures, then this may not be the best investment for you. The prevailing interest rates in the market only matter with bonds if you are trying to sell them. If you are content to receive your interest payments and then redeem the bond at the end of the term, a traditional bond will work fine.

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