1. What is Discount Margin (DM)?

The Discount Margin (DM) measures the spread over LIBOR that equates the present value of a floating rate note's (FRN) future cash flows to its current market price. It's a key metric for evaluating FRNs in the Forex market.

2. How Does the Calculator Work?

The calculator uses the Discount Margin formula:

Where:

• \( Face\ Value \) — The principal amount of the FRN
• \( Price \) — Current market price of the FRN
• \( Days\ to\ Maturity \) — Time remaining until maturity
• \( LIBOR \) — London Interbank Offered Rate

Explanation: The formula calculates the annualized yield from the discount, then subtracts the LIBOR rate to find the spread.

3. Importance of DM Calculation

Details: DM helps investors compare floating rate notes with different maturities and prices. A higher DM indicates higher potential return but may signal greater risk.

4. Using the Calculator

Tips: Enter all values in their respective units. Face value and price should be in the same currency. LIBOR rate should be entered as a percentage (e.g., 1.5 for 1.5%).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between DM and yield spread?
A: DM specifically measures spread over LIBOR for FRNs, while yield spread can refer to various benchmark comparisons.

Q2: Why use 360 days in the calculation?
A: This follows the money market convention for day count in short-term instruments.

Q3: How does DM relate to credit risk?
A: Higher DM typically indicates higher perceived credit risk of the issuer.

Q4: Can DM be negative?
A: Yes, if the FRN is trading at a premium and the yield is below LIBOR.

Q5: How often should DM be recalculated?
A: DM should be monitored regularly as it changes with market conditions and LIBOR fluctuations.