Which statement about a corporate floating-rate security is correct? The benchmark market rate of return used for
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Which statement about a corporate floating-rate security is correct? The benchmark market rate of return used for pricing is T-bill rate.
- Modified duration of floating-rate security equals the time to next coupon reset (or coupon change) date.
- The price of the floating-rate security on the next coupon reset date is already known even if there are drastic reductions in credit worthiness of the issuer or borrower.
- Investor’s required rate of return to discount cash flows of floaters will never change.The required credit risk premium in the required rate of return would not change over the life of the floating rate security even if the company’s credit risk has worsened.
- Price of floating rate security would be at par theoretically on coupon-reset dates even when spot and forward rates change in the future, and there is no change in creditworthiness of company. Assume no transaction costs.
Group of answer choices
I and IV only
I and III only
IV only
II, and III only
I and II only
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