7190%VALUE OF THE CAP IN A CAPPED FLOATER WITH A CAP OF 4% IS CLOSES...

2. - CFA 2018 QUESTION BANK 03 VALUATION AND ANALYSIS BONDS WITH EMBEDDED OPTIONS 2. - CFA 2018 QUESTION BANK 03 VALUATION AND ANALYSIS BONDS WITH EMBEDDED OPTIONS
CFA 2018 QUESTION BANK 03 VALUATION AND ANALYSIS BONDS WITH EMBEDDED OPTIONS
2.7190%

Value of the cap in a capped floater with a cap of 4% is closest to:

ᅞ

A)

$4.41

ᅚ

B)

$2.18

ᅞ

C)

$1.23

Explanation

value of the cap = $100 - $97.82 = $2.18

Question #24 of 88

Question ID: 463818

The spread (k) that must be added to all of the spot rates along each interest rate path that will force equality between the average

present value of the path's cash flows and the market price (plus accrued interest) for the mortgage-backed security (MBS) being

evaluated is called the:

PAC spread.

option-adjusted spread (OAS).

k-spread.

present value of the path's cash flows and the market price (plus accrued interest) for the MBS being evaluated is called the OAS.

Question #25 of 88

Question ID: 479055

Alnoor Hudda, CFA is valuing two floaters issued by Mateo Bank. Both floaters have a par value of $100, three year life and

pay based on annual LIBOR. Hudda has generated the following binomial tree for libor.