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3. Assume that the formula for the coupon rates of a floater and an inverse floater are: Floater coupon rate: reference rate + 1.25% Inverse
3. Assume that the formula for the coupon rates of a floater and an inverse floater are: Floater coupon rate: reference rate + 1.25% Inverse floater coupon rate: 10.50% - reference rate Suppose the $400 million of the bond is used as collateral to create a floater with par value of $200 million and an inverse floater with a par value of $200 million, answer the following questions: (1) What is the coupon rate of the fixed rate collateral for these two floating rate bonds? (1.5 points) (2) Suppose the floor for the inverse floater is 0.75%. What would be the cap of the floater? (1.5 points)
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