An Inverse Floater and a Super-Inverse Floater Are More Valuable

question 46

Multiple Choice

An inverse floater and a super-inverse floater are more valuable to a purchaser if:

• A) interest rates stay the same.
• B) interest rates fall.
• C) interest rates rise.
• D) if held for a long time.

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Definitions:

Bondholders

Individuals or entities that hold bonds issued by corporations, municipalities, or governments and are entitled to receive the bond's interest payments plus the return of the bond's principal upon maturity.

Common Stock

A form of corporate equity ownership, a type of security representing ownership in a corporation, with a claim on a portion of its profits.

Operating Expenses

Costs associated with a company's main operational activities, such as rent, utilities, and payroll.

Incremental Interest Rate

The additional interest rate applied to borrowing beyond a predetermined threshold, or the rate used to evaluate the cost of potential projects over the cost of capital.