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Consider a T-year floater with a par value of $100 paying a coupon of (Libor + c%). a. Show that the price of this floater
Consider a T-year floater with a par value of $100 paying a coupon of (Libor + c%).
a. Show that the price of this floater is equal to that of a T-year floater paying Libor + the value of a fixed annuity of $c for T years.
b. (*) Assume the appropriate discount rate for this floater is (Libor + s%). When will this floater be trading at a premium? When will it be trading at a discount?
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