An Inverse Floater and a Super-Inverse Floater Probably Become the Most

question 19

Multiple Choice

An inverse floater and a super-inverse floater probably become the most valuable to a purchaser when:

• A)interest rates remain constant.
• B)interest rates fall.
• C)interest rates rise.
• D)their maturities are shorter rather than longer.
• E)capped and floored.

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Definitions:

Term to Maturity

The remaining time until a debt security, such as a bond, reaches its repayment date at which point the principal is repaid to investors.

Coupon

In finance, a coupon refers to the interest payment received by a bondholder from the bond's issuer at specified intervals.

Market Rate of Return

The average rate of return of investments in the market over a specific period.

Coupon Bonds

Bonds that pay the holder a fixed interest payment (coupon) periodically until the maturity date, at which point the principal is repaid.