How do interest rate fluctuations impact the current intrinsic valuation of a floating rate bond?
I used three different future interest rate scenarios to derive three different current intrinsic valuations for the floating rate bond. The future rates from the rate predictions were utilized as the discount rates to discount back the future predicted coupon payments and future principal payment. All three future rate scenarios assume a decline in rates, but at varying paces. The future rate scenario with the least rate decline resulted in a current intrinsic valuation that is the lowest of the three current intrinsic valuations, whereas the the future rate scenario with the highest rate decline resulted in a current intrinsic valuation that is in between the lowest and the highest of the three current intrinsic valuations. Seeing no clear pattern of the impact of potential future rate paths on the current floating rate bond valuation, then what should be the takeaway on how rates can impact a current floating rate bond price?
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