A three-year floating-rate bond pays annual coupons of one-year reference rate (set in arrears) and is floored

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A three-year floating-rate bond pays annual coupons of one-year reference rate (set in arrears) and is floored at 3.000%. The reference swap curve is as given in Exhibit 1 (i.e., the one-year, two-year, and three-year par yields are 2.500%, 3.000%, and 3.500%, respectively), and interest rate volatility is 10%. The value of the floored floater is closest to:

A. 100.000.

B. 100.488.

C. 103.000.

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Fixed Income Analysis

ISBN: 9781119850540

5th Edition

Authors: Barbara S. Petitt

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