- CFA Exams
- 2023 Level II
- Topic 6. Fixed Income
- Learning Module 30. 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?
AnalystNotes specializes in helping candidates pass. Period.
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.
Learning Outcome Statementscalculate the value of a capped or floored floating-rate bond;
CFA® 2023 Level II Curriculum, Volume 4, Module 30
User Contributed Comments 0
You need to log in first to add your comment.
I just wanted to share the good news that I passed CFA Level I!!! Thank you for your help - I think the online question bank helped cut the clutter and made a positive difference.
My Own Flashcard
No flashcard found. Add a private flashcard for the subject.