- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 8. Yield and Yield Spread Measures for Floating-Rate Instruments
- Subject 1. Yield and Yield Spread Measures for Floating-Rate Notes
CFA Practice Question
If a FRN is priced at par value on a rate reset date, subsequent increases in the required margin of the floater will cause it to be priced ______ on the next rate reset date.
B. at a premium over par value
C. the same as the par value
A. at a discount below par value
B. at a premium over par value
C. the same as the par value
Correct Answer: A
User Contributed Comments 3
| User | Comment |
|---|---|
| HolzGe1 | Simply put: investors require a higher margin, for an increased credit risk for example. They're not going to get it directly because the quoted margin is fixed (in this case), so the FRN is priced at a discount. |
| mfm102 | Equation 8 -> numerator/denominator ; denominator is {1 + [(index+DM)/m]} so when Discount Margin (or required margin), price will be lower |
| khalifa92 | equired margin = market interest rate quoted margin = coupon payments coupons or quoted margin < required margin or market r = discount |