CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

Which of the following statements is (are) valid regarding the interest rate risk for floating rate securities? The price of a floating-rate security will fluctuate because ______

I. the longer the time to the next coupon reset date, the greater the potential price fluctuation.
II. the required margin that investors demand in the market changes.
III. a floating-rate security will typically have a cap.
Correct Answer: I, II and III

User Contributed Comments 4

User Comment
danlan Why III is also correct?
anricus Because as the investor required return increases the value of the FRN decreases since the floating rate has reached the CAP
nija The cap xtics is good for the issuer to limit its risk exposure which cold have have been included in the indenture, unless the pay off could be liken to to the pay off of in-the money call option, geratet loss to the writer!
2014 See question number 3 for explanation.
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