A floating-rate note has two rate components and confusing them is the commonest single error in the instrument.
What are the reference rate and the quoted margin?
The reference rate is published by somebody else and resets every period. In the United States the reference is now generally a Secured Overnight Financing Rate construction, either a term rate or a compounded average of daily fixings. In India the reference on a rupee floater may be a Treasury bill cut-off yield, a Mumbai Interbank Offered Rate fixing, or an overnight index swap rate, and the administrator of any Indian benchmark should be confirmed against Financial Benchmarks India before use (check the administrator and current benchmark set).
The quoted margin is fixed at issue and printed in the term sheet. It is the spread the issuer agreed to pay over the reference rate for the life of the note, and it does not move even when the issuer's credit does.
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How is a floating rate note's coupon calculated?
The coupon for a period is set at the start of that period, at the reference rate then observed plus the quoted margin, and paid at the end of it. Take a $10,000,000 note with a quoted margin of 80 basis points on an actual/360 basis. If the reference sets at 4.8500% for a 91-day period, the coupon rate is 5.6500% and the cash amount is $142,819.44. If the next reference sets at 5.1000% for a 92-day period, the rate is 5.9000% and the cash amount is $150,777.78. Two periods, $293,597.22, and the only inputs were the two fixings, the margin, the day counts and the face value.
Three details decide whether that arithmetic is right. The coupon is fixed in advance and paid in arrears on the ordinary structure, so the rate you are earning during a period was set before the period began, which is why an index that moves mid-period does not change the coupon. The day count on a money-market-style floater is normally actual/360 in the dollar market, and the 360-day denominator lifts the annualised return by a factor of 365/360. A 5.6500% quoted rate on an actual/360 basis is 5.728472% on a 365-day basis. Compare a floater's quoted rate to a bond's yield without that adjustment and you understate the floater. And a compounded-in-arrears reference, which is now the dollar market's default for many products, is not known until the period is nearly over, which is what payment lags and lookback conventions exist to solve.
What other kinds of floating rate note are there?
Two variations turn up often enough to name. A floored floater guarantees a minimum coupon, which is valuable when the reference goes to zero and which is an option the holder owns. A capped floater does the reverse. An inverse floater pays a fixed rate minus a multiple of the reference, so its coupon falls when rates rise; it is a leveraged rate bet dressed as a bond, and no amount of reading the coupon formula substitutes for writing the table out.