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Lets say you have a 5 year floating rate bond that distributes annual coupon and a capped security at 6.78%. The following three year par
Lets say you have a 5 year floating rate bond that distributes annual coupon and a capped security at 6.78%. The following three year par values are as follows: 3%, 4%, and 5.5% respectively. The volatility of interest rates is 8% a. What is the Value of Capped Floater? What does this mean? b. What is the Value of Floor Floater? What does this mean? c. Compare the two results above and briefly discuss.
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