Hello there,
I am looking at practice question #15 of the CFA Book’s reading 37. You have the following rates:
Node 0
3%
Node 1
U = 4.5027%
D = 3.5419%
Node 2
UU = 6.3679%
UD/DU = 5.0092%
DD = 3.9404%
You are asked to calculate the value of a bond with one-year Libor annually, set in arrears, floored at 3.50%. For the life of me, not only do I not recall doing a practice question similar to this in Schweser, but I cannot reproduce the answers.
Can anyone help me understand why the value is 100.485 (I get like 100.225?) and what does the ‘one-year libor annualy set in arrears’ mean?
Thanks so much in advance!