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FINANCIAL MARKET COURSES

Capped and Collared FRNs

A capped FRN is a floating rate note combined with an interest rate cap, while a collared FRN is one that combines both an interest rate cap and floor. These instruments are attractive to issuers seeking to reduce funding costs and to investors seeking to earn a higher spread over the floating rate index.

 

This course describes how capped and collared FRNs work and illustrates the payoffs on these instruments from the viewpoint of both the issuer and the investor.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Recognize the main characteristics of capped and collared FRNs

    Identify the main considerations in the pricing of capped and collared FRNs

  • COURSE OUTLINE

    Topic 1: Basics of Capped and Collared

    Capped FRNs

    o Investors and Issuers Perspective on Capped FRNs

    Collared FRNs

    o Investors & Issuers Perspective on Collared FRNs

    The Yield Curve and Capped & Collared FRNs

    o Forward Libor Rates > Yield Curve Rates

    o Forward Libor Rates < Yield Curve Rates

    Product Variations

    Topic 2: Pricing Capped & Collared FRNs

    Pricing Capped FRNs

    Pricing Collared FRNs

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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