Question: 18. In valuing a floating rate note, it is necessary to make a modification to the backward induction method. a. Why is the adjustment necessary?

18. In valuing a floating rate note, it is necessary to make a modification to the backward induction method.

a. Why is the adjustment necessary?

b. What adjustment is made?

c. If the floating rate note has a cap, how is that handled by the backward induction method?

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