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BOND MATH: The Theory Behind the Formulas by Donald J. Smith

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CHAPTER 7

Floaters and Linkers

Learning bond math involves building a set of analytical tools. That is what we've been doing for the most part in the first six chapters—rate conversions, pricing and yield calculations, after-tax cash flows, implied spot and implied forward rates, duration, and convexity. The payoff ultimately comes in analyzing bond portfolios and fixed-income strategies, as we'll see in Chapters 9 and 10. But first we can use the toolkit to look at types of debt securities other than the traditional fixed-rate and zero-coupon bonds we've been working with so far.

Floating-rate notes (floaters or FRNs) remind us that trying to minimize interest rate risk in the bond market is rather like squeezing one end of a balloon to make ...

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