2. Assume that the formula for the coupon rates of a floater and an inverse floater are:...
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Question:
2. Assume that the formula for the coupon rates of a floater and an inverse floater are:
Floater coupon rate: reference rate + 2.25%
Inverse floater coupon rate: 10.75% - reference rate
Suppose the $200 million of the bond is used as collateral to create a floater with par value of $100 million and an inverse floater with a par value of $100 million, answer the following questions:
(1) What is the coupon rate of the fixed rate collateral for these two floating rate bonds?
(2) Suppose the floor for the inverse floater is 0.75%. What would be the cap of the floater?
Related Book For
College Algebra Graphs and Models
ISBN: 978-0321845405
5th edition
Authors: Marvin L. Bittinger, Judith A. Beecher, David J. Ellenbogen, Judith A. Penna
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