A floating-rate note (FRN) in which a higher coupon is paid should a particular reference rate is within a specific range composed of a lower and an upper boundary. The coupon payments are calculated based on the number of days during the preceding coupon period in which a reference rate was stuck to a pre-set range. If the reference rate remains within the range, the investor receives a much higher coupon than that of a comparable standard floating-rate note. However, if that rate slides outside the range, no interest accrues on the note. Range floating-rate notes provide an enhanced yield to investors who expect that rates will remain within a particular range. Maturities of range floating-rate notes are typically of 1 to 2 years.
A range floating-rate note is also known as a corridor floating-rate note or an accrual note.
