Q. Consider the following statements regarding Floating Rate Bonds:

1. Coupon rate is not fixed
2. The coupon rate is reset with reference to a benchmark rate
3. They are sold at a discount from the face value

Which of the above statements is / are correct?
Answer: Only 1 and 2
Notes: Statements 1 and 2 are correct: Floating Rate Bonds have a coupon rate that is not fixed and it is periodically reset in accordance with a benchmark rate. Statement 3 is incorrect because these bonds are not necessarily sold at a discount to face value; their issue price can be at par, at a premium, or at a discount depending on market circumstances.