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A floater and inverse floater are to be created from an underlying with $100 million of 6% coupon mortgages. If the floater has a cap
A floater and inverse floater are to be created from an underlying with $100 million of 6% coupon mortgages. If the floater has a cap of 8%, what should the size of the floater and inverse floater be? Assume the floater pays a margin of .3% over LIBOR. The inverse floater pays a rate equal to K L*LIBOR. You will need to figure out K and L. K is the cap rate on the IFL, 0 is the min rate.
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