An inverse floater and a super-inverse floater probably become the most valuable to a purchaser when:
A)interest rates remain constant.
B)interest rates fall.
C)interest rates rise.
D)their maturities are shorter rather than longer.
E)capped and floored.

Question

Quizplus · Accepted Answer

Inverse floaters and super-inverse floaters (SIFs) are structured products that have an inverse relationship with interest rates. As such, they become more valuable to a purchaser when interest rates fall, as the coupon payments will increase. If interest rates rise, the coupon payments will decrease, making the investment less valuable. The maturity of the security and whether it is capped or floored do not necessarily impact its value as much as changes in interest rates. Therefore, option B is the best choice.

An Inverse Floater and a Super-Inverse Floater Probably Become the Most