标题: Riddle me this - Interest Rate Floor... [打印本页] 作者: svgleeson 时间: 2011-7-13 16:55 标题: Riddle me this - Interest Rate Floor...
Schweser Book 1, Exam 3PM, Question 93....
If 1-year LIBOR at the end of year 2 is 5.8%, the absolute value of a position (long or short) in the 2-year, 6%, $30,000,000 interest rate floor at the end of year 2 is closest to:
a) $ 56,711
b) $ 60,000
c) $ 63,480
Answer is A. The explanation makes NO sense to me....
"The floor pays off in arrears, so the $60,000 payoff is made at the end of the 3rd year, and the floor value at maturity is the present value of the $60,000 payoff discounted 1 year at 5.8%."
WTF are they talking about with this "3rd year" and paying in arrears. WTF?!??!作者: mengxu 时间: 2011-7-13 16:55
it is a 6% floor.
LIBOR at the end of the 2nd year is 5.8%.
Difference between 6% and 5.8% discounted at 5.8% will be the Floor's payoff in the 3rd year. The 5.8% at the end of the 2nd year - is applicable to payoff in the 3rd year.
