3. Assume that the formula for the coupon rates of a floater and an inverse floater are: Floater coupon rate: reference rate + 1.5% Inverse floater coupon rate: 12% - reference rate Answer the following questions:
a. What is the coupon rate of the fixed rate collateral for these two floating rate bonds?
b. Suppose the floor for the inverse floater is 1%. What would be the cap of the floater?
4. What is the relationship between a bond’s dirty price and clean price? Under what condition, a bond’s dirty price is different from its clean price?
5. A bond face value $1000. The maturity of the bond is 5 years. The annualized yield of maturity for the bond is 6% and its annual coupon rate is 8% being semiannually paid.