You have built the following interest rate tree for the next 3 years

Time 1 (%)	Time 2 (%)	Time 3 (%)
		I3hh = 5.06
	I2h = 3.83
I1 = 2.01		I3hl = i3lh = 4.16
	I2l = 1.51
		13ll = 3.8

You are interested in valuing a 3 year floating rate bond with coupon rate set in arrears at a credit spread of 53 bps. The coupon is capped at 5.2% and floored at 3.64%

What is the value of this bond per $100 of par value?

Answer rating: 100% (QA)

To value the floating rate bond we need to calculate the expected cash flows at each coupon payment date and discount them back to the present value u... View the full answer