How to Estimate the Yield on Floating Interest Rate Bonds
- 1). Determine the index the floating rate is attached to. You will be able to find this on the prospectus which is available on the issuing company's website under "Investor Relations."
- 2). Determine the current price change for the index. The prospectus will provide you with historical rates as well.
- 3). Calculate the growth rate. The growth rate is calculated by subtracting the ending value from the beginning value and then dividing this number by the beginning value.
- 4). Apply this growth rate to your floating rate. Multiply the floating rate by (1 + the percentage of the growth rate) for an estimate of the yield on floating interest rate bonds. That is, if the last rate was 6.5 percent, and the index or rate the bond is tied to goes up 8 percent in the last quarter then multiply 6.5 percent by 1.08 in order to get the new rate (yield).
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