Yields for floating rate bonds

Question 1

floating rate instruments

Answer 1

floating bonds, banks loans

SOFR - short money market rate = MRR + Spread

fixed coupon - variable price
stable price - variable coupon

Question 2

conventions

Answer 2

act/365 floating
act/360 floating

Question 3

quoted margin

Answer 3

spread over the reference rate
credit related
may be negative

Question 4

required margin

Answer 4

spread required by investors

changes come from issuers credit risk

Question 5

floating rate changes

Answer 5

PV is a par in every coupon days every time unless there would be a change in credit risk of a issuer

between c days it could be premium or discount because the changes of reference rate but pv pulls to par

Question 6

discount margin (DM)

Answer 6

margin required by the market

if QM = DM; PV is par
if QM>DM; PV > par

Question 7

floating rate bonds calculate

Answer 7

calculated as regular bond

PMT = ((index +QM)*FV)/m

m = periodicity

r= (index+DM)/m

Question 8

zero DM

Answer 8

constant DM added to each spot rates

Question 9

Floating rate PV

Answer 9

can be calculated on forward rates

mianownik = spot rates
licznik = forward rates

Question 10

money market yields

Answer 10

(>1y). every rate would be annualized but not compounded

Question 11

Discount rates

Answer 11

we buy at 96 and get a 100 (T-bills; 0c bond)

PV = FV(1-days/yearDR)
DR = (year/days)*(FV-PV)/FV

Question 12

Add-on rates

Answer 12

you pay 100 and get 105

PV = FV/(1+days/yrAOD)
AOR = (yr/days)(FV-PV)/PV