- CFA Exams
- 2025 Level II
- Topic 6. Fixed Income
- Learning Module 28. Valuation and Analysis of Bonds with Embedded Options
- Subject 7. Valuation and Analysis of Capped and Floored Floating-Rate Bonds
Why should I choose AnalystNotes?
Simply put: AnalystNotes offers the best value and the best product available to help you pass your exams.
Subject 7. Valuation and Analysis of Capped and Floored Floating-Rate Bonds PDF Download
We can use the arbitrage-free framework to value capped and floored floaters.Value of capped floater = Value of straight bond - Value of embedded cap Value of floored floater = Value of straight bond + Value of embedded floor
The cap provision in a floater is an issuer option that prevents the coupon rate from increasing above a specified maximum rate. The value of a capped floater should be lower than the value of an otherwise similar straight bond.
The floor provision in a floater is an investor option that prevents the coupon from decreasing below a specified minimum rate.
User Contributed Comments 0
You need to log in first to add your comment.
You have a wonderful website and definitely should take some credit for your members' outstanding grades.
Colin Sampaleanu
My Own Flashcard
No flashcard found. Add a private flashcard for the subject.
Add