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.

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.

Value of capped floater = Value of straight bond - Value of embedded cap

The floor provision in a floater is an investor option that prevents the coupon from decreasing below a specified minimum rate.

Value of floored floater = Value of straight bond + Value of embedded floor

Learning Outcome Statements

calculate 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.
Edward Liu

Edward Liu

My Own Flashcard

No flashcard found. Add a private flashcard for the subject.

Add

Actions