Simple Margin
The simple margin is a measure of the effective spread of a FRN that is not traded at par. If the FRN trades at par, the simple margin will equal the quoted spread.
To calculate the simple margin, we first compute the sum of the quoted spread of the FRN and the capital gain (or loss) a investor will earn if the FRN is held to maturity.
Second, we adjust the above for the fact that we buy the FRN at a discount or premium to the nominal value:
A more complex measure of the effective spread is a discount margin, which takes into account the "time value of money" of the FRN cash flows. The formula for the calculation of the discount margin is more complex and and its calculation generally requires a financial calculator or a computer.
Read more about this topic: Floating Rate Note
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