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    kellywg's Avatar
    kellywg Posts: 2, Reputation: 1
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    #1

    Jun 29, 2009, 08:29 AM
    Computing a PV of a variable coupon bond
    Can anyone help with this question:

    Assume you are trying to purchase a bond that pays monthly coupons (these coupons are determined by the 1m Libor rate) + par at maturity

    The maturity of the bond is 2 years. What would be the price now for this bond?
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Jun 29, 2009, 09:58 AM
    Generally, and assuming no change in the issuer's credit quality, a floater prices at par immediately following each coupon date.

    Between coupon dates, a floater's price will move off par, but with a monthly "reset", it shouldn't stray far.

    Hope this helps a bit,
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