PRMIA Exam 8006 Topic 2 Question 39 Discussion

Actual exam question for PRMIA's 8006 exam

Question #: 39
Topic #: 2

[All 8006 Questions]

A floating rate note pays daily overnight LIBOR. It matures in exactly one year. What is the duration of the note?

A0.5 years

B0.33 years

C0 years

D1 year

Show Suggested Answer

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.

by Melissa at May 05, 2022, 02:55 AM

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