(Fixed Income Securities) A Finance Director of a company wishes to issue a three-year inverse floating rate bond, which pays a coupon of (12% LIBOR(-1)), where (t-1) means in the previous coupon period, with a face value of £100. No such bond currently exists in the market. However, there is a three-year, zero - coupon bond with a face value of £125 priced at £121.32. There is also a three-year coupon bond with a face value of £100 paying a coupon rate of 4% and priced at £108.82, And a floating rate bond, which has just paid its coupon at a rate of 2* LIBOR(t-1) and has a face value of £100. Calculate the price of the inverse floating rate bond.
(Fixed Income Securities) A Finance Director of a company wishes to issue a three-year inverse floating rate bond, which pays a coupon of (12% LIBOR(-1)), where (t-1) means in the previous coupon period, with a face value of £100. No such bond currently exists in the market. However, there is a three-year, zero - coupon bond with a face value of £125 priced at £121.32. There is also a three-year coupon bond with a face value of £100 paying a coupon rate of 4% and priced at £108.82, And a floating rate bond, which has just paid its coupon at a rate of 2* LIBOR(t-1) and has a face value of £100. Calculate the price of the inverse floating rate bond.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:(Fixed Income Securities) A Finance Director of a company wishes to issue a
three-year inverse floating rate bond, which pays a coupon of (12%
LIBOR(-1)), where (t-1) means in the previous coupon period, with a face
value of £100. No such bond currently exists in the market. However, there
is a three-year, zero - coupon bond with a face value of £125 priced at
£121.32. There is also a three-year coupon bond with a face value of
£100 paying a coupon rate of 4% and priced at £108.82, And a floating
rate bond, which has just paid its coupon at a rate of 2* LIBOR(t-1) and has
a face value of £100. Calculate the price of the inverse floating rate bond.
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