Skip to content

CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Floating-Rate Instruments

An analyst values a two-year annual-pay FRN with par of 100, a quoted margin of 50 bps, and a required margin of 90 bps. The reference rate is 3.00% for both years. The FRN's price is closest to:

The price is about 99.22. Coupons are 3.50 (3.00% reference plus 0.50% margin) and are discounted at 3.90% (3.00% plus the 0.90% required margin) for two years with par of 100 repaid at maturity, giving roughly 99.24.

  1. A98.43Correct
  2. B99.22
  3. C99.78

Explanation

Coupon = 3.50% = 3.50. Discount rate = 3.90%. PV = 3.50/1.039 + 103.50/1.039^2 = 3.3686 + 95.8795 = 99.248. Recheck: 1.039^2 = 1.079521; 103.5/1.079521 = 95.8742; total 99.243. This is closest to 99.22, so the key is the second option. Using the margin difference only (0.40 x 2 years = 0.80) gives about 99.2 too, but a coupon-only error gives 98.43.

Did you get it right without looking?

One question tells you little. A timed set on Yield and Yield Spread Measures for Floating-Rate Instruments shows your real accuracy, how long you take and where you lose marks.

Practise Yield and Yield Spread Measures for Floating-Rate InstrumentsFree diagnostic mock

More Yield and Yield Spread Measures for Floating-Rate Instruments questions