A floating rate security is one whose interest rate or dividend is influenced by specific market indicators. These rates are often tied to an administered rate, such as the prime rate. This means that as the administered rate changes, so does the interest or dividend of the security. This can provide investors with a potential advantage, as they may be able to earn higher returns when market indicators are favorable. However, it also introduces a level of risk, as these rates can fluctuate and potentially decrease the returns on the investment.
