Evaluate the value of floating -rate note Use the following binomial tree to value a floating-rate note

Evaluate the value of floating -rate note

 

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Use the following binomial tree to value a floating-rate note (floater) with a cap of 7.4% and a floor of 5.2%: rO (4.1000%), r1,H (6.0560%), r1,L (5.0217%), r2,HH (7.6633%), r2,HL (6.3376%), r2,LL (5.2523%), r3,HHH (9.8946%), r3,HHL (8.1645%), r3, HLL (6.7479%), and r3,LLL (5.5882%). This floater has a maturity of 4 years and a par value of $100. Coupons are paid annually on this floater, and they are paid in arrears, i.e., the coupon rate is set at the beginning of the period, but the coupon is actually paid at the end of the period. Use the following binomial tree to value a floating-rate note (floater) with a cap of 7.4% and a floor of 5.2%: rO (4.1000%), r1,H (6.0560%), r1,L (5.0217%), r2,HH (7.6633%), r2,HL (6.3376%), r2,LL (5.2523%), r3,HHH (9.8946%), r3,HHL (8.1645%), r3, HLL (6.7479%), and r3,LLL (5.5882%). This floater has a maturity of 4 years and a par value of $100. Coupons are paid annually on this floater, and they are paid in arrears, i.e., the coupon rate is set at the beginning of the period, but the coupon is actually paid at the end of the period.

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The value of the flo ater can be determined by using a bin omial tree The value of the flo ater is 1... View the full answer