refer to both floating-rate securities and adjustable-rate securities as floaters. As noted, the reference rate is the interest rate or index that appears in a floaters coupon formula and it is used to determine the coupon payment on each reset date within the boundaries designated by embed- ded caps and/or floors. Common reference rates are LIBOR (with differ- ent maturities), Treasury bills yields, the prime rate, the federal funds rate, and domestic CD rates. There are other reference rates utilized in more specialized taxable fixed-income markets such as the mortgage- backed securities and asset-backed securities markets. For example, the most common reference rates for adjustable-rate mortgages (ARMs) or collateralized mortgage obligation (CMO) floaters include: (1) the 1- year Constant Maturity Treasury rate (i.e., 1-year CMT); (2) the Elev- enth District Cost of Funds (COFI); (3) 6-month LIBOR; and (4) the National Monthly Median Cost of Funds Index.   Restrictions on the Coupon Rate A floater often imposes limits on how much the coupon rate can float. Specifically, a floater may have a restriction on the maximum coupon rate that will be paid on any reset date. This is called a cap. Consider a hypothetical floater whose coupon formula is 3-month LIBOR plus 50 basis points with a cap of 7.5%. If 3-month LIBOR at a coupon reset date is 8%, then the coupon formula would suggest the new coupon rate is 8.5%. However, the cap restricts the maximum coupon rate to 7.5%. Needless to say, a cap is an unattractive feature from the inves- tors perspective. In contrast, a floater may also specify a minimum coupon rate called a floor. For example, First Chicago (now 1stChicago NBD Corp.) issued a floored floating rate note in July 1993 that matures in July 2003. This issue delivers quarterly coupon payments with a coupon formula of 3- month LIBOR plus 12.5 basis points with a floor of 4.25%. So if 3- month LIBOR ever fell below 4.125% the coupon rate would remain at 4.25%. A floor is an attractive feature from the investors perspective. When a floater possesses both a cap and a floor, this feature is referred to as a collar. Thus, a collared floaters coupon rate has a maxi- mum and a minimum value. For example, the Economic Development Corporation issued a collared floater in February 1993 that makes semi-     annual coupon payments and matures in 2003. The coupon formula is 6-month LIBOR flat with a floor of 5% and a cap of 8%.2   Inverse Floaters While a floaters coupon rate typically moves in the same direction as the reference rate, there are floaters whose coupon rate moves in the