CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

The value of a bond that has both a cap provision and put provision is ______ the value of an otherwise similar straight bond.

A. higher than or equal to
B. lower than or equal to
C. lower than, higher than or equal to
Correct Answer: C

It depends on the cap, floor, interest rate volatility etc. A collar is a long position in a cap and a short position in a floor. The issuer of a floater might use this to cap the upside of his debt service, and pay for the cap with a floor.

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