In the #3 Schweser exam, they ask you to value a 2 year floor. I thought you were supposed to add the 2 year floorlet to the 1 year floorlet. In this case, they subtracted one from the other. They give an explanation, something to the effect that the floorlet equals a put, and so you subtract, but I still don’t get it. I don’t have the exam in front of me right now, so sorry for no other additional info. Anyone out there no why they subtracted rather than added the two floorlets?
this one blows…sorry …i have no idea
sort of remember this one… Not 100% sure, but I think they were asking for the value of a two year put. They give you the value of a one year and a two year floor. Since the one year floor is basically a one year put and the two year floor is a one year and a two year put, the value of the two year put is the two year floor minus the one year floor.
I got twisted around the axel on this one…I am chalking it up to brutal language.