medium · Debt Capital Markets bond-instruments-structures
What is meant by the term 'compounding in arrears' for a SOFR-based floating-rate note?
- The principal is adjusted based on the performance of a chosen equity benchmark index
- The daily overnight rates are compounded over the period to determine the interest at the end
- The coupon margin is increased each month that the floating-rate bond remains outstanding
- The interest is paid at the start of the period using rates observed from prior historical data
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