Page 57 - FINAL CFA SLIDES DECEMBER 2018 DAY 14
P. 57

Session Unit 14:
     Floating-Rate Note Yields, p.48
                                                                  52. Introduction To Fixed Income Valuation


     Example: Pricing a floating-rate note on a reset date: A semi-annual $1,000 par value FRN has two years to maturity,
     the reference rate is 180-day Libor, and the quoted margin is 60 basis points. 180-day Libor today (a coupon payment
     and reset date) is 3% and the required (discount) margin is 86 basis points. Calculate the value of the FRN.












                                                         tanties



















          Will FRN trade at a premium or a discount?


                                                                            Discount margin (YTM = 1.93%) >
            At discount! Because?
                                                                            quoted margin (coupon rate = 1.80)!
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