Assume that the formula for the coupon rates of a floater and an inverse floater are: Floater coupon rate: reference rate + 1.5% Inverse floater co upon rate: 12% - reference rate Answer the following questions: (A) What is the coupon rate of the fixed rate collateral for these two floating rate bonds? (B) Suppose the floor for the inverse floater is 1%. What would be the cap of the floater?
Assume that the formula for the coupon rates of a floater and an inverse floater are: Floater coupon rate: reference rate + 1.5% Inverse floater co upon rate: 12% - reference rate Answer the following questions: (A) What is the coupon rate of the fixed rate collateral for these two floating rate bonds? (B) Suppose the floor for the inverse floater is 1%. What would be the cap of the floater?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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6. Assume that the formula for the coupon rates of a floater and an inverse floater are:
Floater coupon rate: reference rate + 1.5%
Inverse floater co
upon rate: 12%
-
reference rate
Answer the following questions:
(A)
What is the coupon rate of the fixed rate collateral for these two floating rate
bonds?
(B)
Suppose the floor for the inverse floater is 1%. What would be the cap of the
floater?
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