All solutions in text example, BB example 3 and EOC problem 3 are using the proceeds from selling leveraged FRN with face value FP to buy multiple of face value FP (1.5FP) in fixed coupon bonds. Where does the extra cash come from to buy more (0.5FP) of face value bonds?
I used the search and can’t find any good explanation.
read this — multiple times same question has been posted on the forum before…
http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/9666781
cpk,
I have read this thread and many others before posting my question and I don’t buy the explanation, there is none. The only source of financing to cover the extra face value I could think of is leveraging against proceeds and this part is not explained in the curriculum. If you can please elaborate on this part I would really appreciate your help.