True or False: Floating Rate Notes Behave Differently in Response

question 60

Multiple Choice

True or false: floating rate notes behave differently in response to interest rate risk than straight fixed-rate bonds.

• A)True since FRNs experience only mild price changes between reset dates, over which time the next period's coupon payment is fixed (assuming, of course, that the reference rate corresponds to the market rate applicable to the issuer).
• B)False since all bonds experience an inverse price change when the market rate of interest changes.
• C)None of the above

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Definitions:

Expected Payoff

Expected payoff is the anticipated value of an investment or decision under uncertainty, calculated as the weighted average of its possible outcomes.

Nash Equilibrium

A concept in game theory where each player's strategy is optimal, considering the strategies of other players, and no player has anything to gain by changing only their own strategy.

Pure Strategies

In game theory, a strategy where a player consistently follows a specific action or plan whenever a particular situation arises.

Dominant Strategy

In game theory, a strategy that is the best for a player to follow, regardless of the strategies chosen by other players.