Effective Interest Rate With a Floor (1)
(1) A feature of a debt contract or a separate agreement that puts a minimum or floor on the interest rate of a floating rate instrument. Also called Interest Rate Floor. See also Cap (1) (diagram), Collar (2) (diagram), Floortion. (2) A long put that limits the downside risk in a long equity position or portfolio. (3) In Constant Proportion Portfolio Insurance (CPPI), the minimum value the portfolio is permitted to reach. See Constant Proportion Portfolio Insurance (CPPI).
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