A firm issues a floater with 100 face value paying LIBOR on the first day of each calendar quarter. The floater will mature on Jan 1, 2040. Assume the yield curve is always flat. The floater was rated as AAA and has a similar credit quality as the LIBOR.

 

On April 1, 2019, the annual equivalent yield of LIBOR was 4%. The floater can be decomposed into a zero coupon bond and a floating rate annuity.

 

(A)      Find the price of the floater. Explain how you get your answer.

 

(B)      Find the price of the zero-coupon bond and the annuity.

 

(C)      Find the duration and modified duration of the floater. Explain how you get your answers.

 

(D)      Find the duration and modified duration of the zero-coupon bond and the annuity.