derivatives (well . . . Fixed Income, actually)

CFA Level II Fixed Income
#1

what would be the market value of a floating coupon bond at inception?

#2

Anything from 0% of par to 10,000% of par. Or maybe more.

It depends on a host of factors.

For example, a default-free government unleveraged floater paying LIBOR should sell at par (or darned close to it) at inception. A risky corporate unleveraged floater paying LIBOR + 200bp will sell for below par if the market thinks that the spread should be 300bp, and above par if the market thinks that the spread should be 100bp.

Also, this is Fixed Income, not Derivatives.

#3

this concept there at swap valuation

#4

True: the floating leg of a swap is equivalent to a floating rate bond.

In that case, it’s considered a high quality, essentially default-free floating rate bond which pays LIBOR, so its value at inception is par.