A three-year floating rate bond pays annual coupons of one-year Libor (set in arrears) and is floored at 3.000%. The Libor swap curve is as given in the below table (i.e, 1 year = 2.5000%, 2 year =3.000%, 3 year = 3.500%, respectively), and interest rate volatility is 10%. The amount is $100. 

Maturity (year)	Par Rate (%)	Spot Rate (%)	One Year Forward Rate (%)
1	2.500	2.500	f(0,1) = 2.500
2	3.000	3.008	f(1,2) = 3.518
3	3.500	3.524	f(2,3) = 4.564

 

Find the value of the floored floater?

Answer rating: 100% (QA)

Lets calculate the present value of the cash flows step by step Year 1 The coupon payment is based o... View the full answer