Question

1. BYL Inc. issued a 20-year floating rate bond with face value of $1,000. The coupon payments of the floater are calculated based on the basis of the coupon formula of 180-day LIBOR+150 basis points. The floor and cap of the floater are 3.5 percent and 7 percent respectively. Compute the coupon rate and coupon payments for the floater under the following LIBOR rates:

1%, 1.50%. 2%, 2.25%, 3%, 4.75%, 5%, 5.25%, 5.50%, 5.75%, and 6%.

2. Morgan Stanley issued a range note. The coupon payments of the range note are computed on the basis of the coupon formula of 30-day Treasury bill rate + 50 basis points. If the floor and cap of the note are 2.0 percent and 4.5 percent respectively, what will be applicable coupon rate and coupon payments for $100 of par value under the following Treasury bills rates?

0.50%, 0.75%, 1%, 1.25%, 1.5%, 1.75%, 2%, 3.25%, 3.50%, 3.75%, 4%, 4.25%.

3. SXR has an outstanding issue of an inverse floater with face value of $1,000. The coupon payments for the inverse floater is computed using the formula: 10% - 2.5(Three-month LIBOR). What will be the coupon rate and the coupon payment if the three-month LIBOR is:

0%, 0.5%, 1%, 1.25%, 1.5%, 2%, 3.5%, 3.75%, 4%, 4.25%

4. UMS Bank issued a dual-indexed floating-rate bond with coupon formula,

10-year constant maturity Treasury rate + 200 basis points – 6-month LIBOR.

The cap and floor of the floater are 10 percent and 2.75 percent respectively. Compute the coupon rate and coupon payment for each principal amount of $100 under the following reference rates:

10-Yr CMT	6-Month LIBOR
12%	2.5%
11.5%	3%
11%	3.25%
10.5%	3.50%
10%	3.75%
6%	4%
5.5%	4.25%
5%	4.5%
4.5%	4.75%

Answer 1

You have asked multiple unrelated questions in the same post. I have addressed the first one. Please post the balance questions separately one by one.

BYL Inc. issued a 20-year floating rate bond with face value of $1,000. The coupon payments of the floater are calculated based on the basis of the coupon formula of 180-day LIBOR+150 basis points. The floor and cap of the floater are 3.5 percent and 7 percent respectively. Compute the coupon rate and coupon payments for the floater under the following LIBOR rates:

Steps involved:

• Calculate the rate based on the formula: LIBOR+150 basis points = LIBOR + 1.5% (as 1 bps = 0.01%)
  • If this turns out to be lower than the floor then the applicble rate will be floor
  • If this turns out to be higher than the cap then the applicble rate will be cap
  • If this turns out to be in between the cap and floor, the applicable rate will be same as the calculated rate.
  • Please see the table below, the last columnis your answer.

LIBOR	LIBOR + 1.5%	Applicable rate
1.00%	2.50%	3.50%
1.50%	3.00%	3.50%
2.00%	3.50%	3.50%
2.25%	3.75%	3.75%
3.00%	4.50%	4.50%
4.75%	6.25%	6.25%
5.00%	6.50%	6.50%
5.25%	6.75%	6.75%
5.50%	7.00%	7.00%
5.75%	7.25%	7.00%
6.00%	7.50%	7.00%