easy · Debt Capital Markets bond-instruments-structures

What is meant by the term 'compounding in arrears' for a SOFR-based floating-rate note?

1. The principal is adjusted based on the performance of a chosen equity index
2. The daily overnight rates are compounded over the period to determine the interest at the end
3. The margin is increased every month that the bond remains outstanding
4. The interest is paid at the beginning of the period based on historical data

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