A floating rate note (FRN) which is designed as a yield enhancement instrument. It has a premium rate that is equal to a reference index rate (market rate), subject to a cap level. If the market rate increases beyond the cap rate, the note turns into a reverse floating rate note. The floating rate note’s yield decreases as the market rate appreciates.
This note is typically sought by investors who expect floating rates would only stage a modest increase over the span of the instrument.
