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PRMIA Exam 8006 Topic 2 Question 39 Discussion
Actual exam question for
PRMIA's
Exam I: Finance Theory, Financial Instruments, Financial Markets ? 2015 Edition exam
Question #: 39
Topic #: 2
[All Exam I: Finance Theory, Financial Instruments, Financial Markets ? 2015 Edition Questions]
Topic #: 2
A floating rate note pays daily overnight LIBOR. It matures in exactly one year. What is the duration of the note?
Suggested Answer:
C
Since the note pays daily LIBOR, there is no interest rate risk associated with this instrument. Note that interest rate risk for a fixed income instrument arises when the current interest rate changes to a rate different from that the instrument pays. In this case, the rate floats, and is reset daily, therefore there is no risk and the duration is 0. Choice 'c' is the correct answer.
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