For floaters selling at a discount/premium
SFL=[100(100-P)/n + M]*[100/P]
P - price of the floater
n - years to mature
M - quoted margin
SFL is a measure of a return that accounts for the amortization of the discount/premium and constant quoted margin over the security’s remaining life.
I have some questions regarding SFL.
1) Is this spread annual, for the whole life of the security or reset period specific? In literature n is indicated in years, so I guess M is also should be in years to be consistent. Then it means that the spread is an annual one?
2) Why do we magnify the spread by multiplying it by 100/P? Isn’t (100-P) already counts for the discount/premium?
Thank You for your answers.
SFL=[100(100-P)/n + M]*[100/P]
P - price of the floater
n - years to mature
M - quoted margin
SFL is a measure of a return that accounts for the amortization of the discount/premium and constant quoted margin over the security’s remaining life.
I have some questions regarding SFL.
1) Is this spread annual, for the whole life of the security or reset period specific? In literature n is indicated in years, so I guess M is also should be in years to be consistent. Then it means that the spread is an annual one?
2) Why do we magnify the spread by multiplying it by 100/P? Isn’t (100-P) already counts for the discount/premium?
Thank You for your answers.