- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 42. Fixed-Income Securities: Defining Elements
- Subject 4. Structure of a Bond's Cash Flows

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**CFA Practice Question**

If interest rates are expected to decline, an investor can earn a higher coupon interest rate by purchasing a(an) ______.

A. floater with a floor

B. callable bond

C. inverse floater

**Explanation:**Inverse floaters have a coupon formula such that the coupon rate increases when the reference rate decreases and decreases when reference rate increases. The coupon rate moves in the opposite direction from the change in the reference rate.

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