Its about time - Memorize

tulkuu · May 30, 2012, 4:44pm

Neat. Spread included?

ramdabom · May 30, 2012, 4:47pm

janardhanc that is beautfiul. nice summary!

FinNinja · May 30, 2012, 5:10pm

lgirl44:

cpk123:

drewd313:

EAR for borrower who purchases a call option:

Calc compound call premium = cost of call * ((1 + (Libor + Spread)^ (days til expiration of option / 360))

should be cost of call * ((1 + (Libor + Spread) * (days til expiration of option / 360))

drewd313:

Calculate interest due on loan = notional principal * (Libor + Spread)^ (days in Libor / 360)

SHOULD INSTEAD BE notional principal * (Libor + Spread) * (days in Libor / 360)

drewd313:

Calculate option payoff = notional pricnipal * (Libor - exercise rate) ^ (days in Libor / 360)

should be

notional pricnipal * (Libor - exercise rate) * (days in Libor / 360)

drewd313:

Calc net loan amount = loan amount - cost of compound call premium

Calc effective interst = int due on loan - option payoff

EAR = (notional principal + effictve int / net loan proceeds)^(365 / days in Libor) - 1

This line 6 was the only place where the POWER was correct.

drewd313:

That’s not really a tip/trick, but that is how you do it.

hmm…I think this is one area of the text I will be PRAYING does not come up in meaningful size!

I was actually hoping for one of these! It’s actually not that difficult once you breack it apart and do it a couple of times.

L3Crucifier · May 30, 2012, 6:54pm

Somehow I am sensing it’s going to be a rough Saturday. 2008 was killer, 2010 was disastrous, 2012 is probably going to be catastrophic! … I hope not, but if the inertia is maintained (Status Quo) by the CFAI, then we are in for a rough year!