- CFA Exams
- CFA Level I Exam
- 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
CFA Practice Question
The value of a bond that has both a cap provision and put provision is ______ the value of an otherwise similar straight bond.
B. lower than or equal to
C. lower than, higher than or equal to
A. higher than or equal to
B. lower than or equal to
C. lower than, higher than or equal to
Correct Answer: C
It depends on the cap, floor, interest rate volatility etc. A collar is a long position in a cap and a short position in a floor. The issuer of a floater might use this to cap the upside of his debt service, and pay for the cap with a floor.
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