medium · Debt Capital Markets
An institutional investor is evaluating a 5-year Floating-Rate Note (FRN) currently trading at 102.50. The QM is 200 bps.
If the market's required DM for this credit remains constant, what will happen to the bond's price as it approaches maturity?
- The price will stay at 102.50 until the final redemption date.
- The price will drop immediately to 100.00 at the next coupon reset.
- The price will increase as the final principal payment becomes more certain.
- The price will gradually decline toward 100.00.
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