- CFA Exams
- CFA Level I Exam
- 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

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**CFA Practice Question**

The credit quality of a 3-year, capped floater is estimated to match the Libor swap curve, which is assumed to be the same as the par yield curve. The 1-year, 2-year and 3-year par yields are 1.5%, 2% and 2.5%, respectively. There is no interest rate volatility. The floater's coupon pays the one-year Libor annually, set in appears, and is capped at 2.6%. What is MOST LIKELY the value of this floater?

A. $98

B. $100

C. $101

**Explanation:**The value of the floater is $100 because the coupon paid is equal to the discount rate, and there is NO interest rate volatility. The cap does not matter here as the coupon rate will never reach 2.6%.

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**User Contributed Comments**
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Comment |
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bruno5104 |
Easy |