88292 Answer and Explanation 1.0185 = 1 + 0.037(180/360) 1.0085 = 1 + 0.034(90/360) 767/760 – 1.0185/1.0085 = −0.00070579 × 5,000,000 = −$3,526 Note: The 1.0185/1.0085 is the present value of the floating rate side after 90 days. I still don’t understand why they are only capturing the final coupon and principal 1+.037 at 180 days whereas 88313 captured the next coupon .044 at 90 days and the final coupon and principal 1+.044 at 270 days.
Because the first one was a fixed bond where you need to value all the remainder payments. and the second one was a floating rate bond.
You guys make it look really easy. I guess for 88292 I should have assumed it is a 1 year bond. Duh. Thanks for all the help!
wow. the second one was amazingly simple. goddamn Schweser explanation is garbage.
sebrock Wrote: ------------------------------------------------------- > Ok, the first one. > > Step one - you are going to receive the value of > the index > > 982/985 = .9970 or a loss of .003% > > Step two - lets value the original swap as a two > coupon bond with principal at the end > > [.022 (half of the .044 rate) / 1 + ( .046 * .25)] > + [1.022 / 1 + (.048 * .75)] = 1.0082 > > Now the value of the swap, you can already tell > you are negative because you lost index and paid > on the fixed rate. > > .9970 - 1.0082 = - .0112 * 2 million = approx a > 22,500 loss. > > Will do the other one after the kids go to bed. this is wrong. the equity payer (fixed rate receiver, Party A) pays out the equity return and receives the fixed rate. on the flip side, the equity receiver/fixed rate payer/Party B pays out the fixed rate. thus, it should be the reverse of what u did.
right, I did the equity receiver not payer. Same math different sign. Thanks, will definitely pay more attention on exam day.