CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

Assume that a floater paying six-month LIBOR + 0.8%, is priced at par value when issued. The coupon rate is reset every six month. If the LIBOR goes down two month after the issuance date, the price of the floater will be ______.
A. at a premium to par value
B. at a discount to par value
C. the same as the par value
Explanation: The coupon rate will be reset on the next coupon payment date, and the price will be pulled to par value.

User Contributed Comments 2

User Comment
janis36 Does "LIBOR goes down" also implies that required yield on this security goes down?
droko yes. the entire yield curve goes down in this case, which lowers the required rate of return.
You need to log in first to add your comment.