Which of the following statements about floating rate notes (FRNs) is true?

Floating rate notes (FRNs) are characterized by their variable interest rates, which is why the statement about them having variable interest rates is the correct choice. The interest rate on an FRN typically adjusts periodically, based on a benchmark rate such as LIBOR or another reference rate. This mechanism allows the yield of the FRN to change in response to fluctuations in market interest rates, providing a hedge against interest rate risk.

In contrast, long-term bonds typically have fixed interest rates that do not change over the life of the bond, making them different from FRNs. Fixed interest payments can expose investors to the risk of rising interest rates, as their fixed returns may become less attractive compared to newer bonds issued at higher rates. Furthermore, while FRNs can be issued by various entities, including corporations and municipalities, they are not exclusively issued by government entities, which makes that statement inaccurate.