Hi, I cannot understand, how can one issue a structured note with face value FP and interest rate of 2 * LIBOR. And then use the proceed sto buy bonds worth 2FP. If you are issuing a structured note of face value FP, then you have cash worth FP. How can one use cash worth FP to buy bonds worth 2FP? Refer CFA notes, book 5, pages 451 and 452.
I havent read this section, but i would guess the notes are offered at a premium . Premium price = 2FP. If the coupon = 2* libor is twice the market required yield, the bonds will be offered at an premium…
I am facing same problem in understanding this … anybody has a proper answer to this? One feasible option could be that company buys “bonds” at significant discount to par, and also sell note at premium in such a way that cash raised from selling the note is sufficient to buy bond of requisite face value. lokeshray Wrote: ------------------------------------------------------- > Hi, > > I cannot understand, how can one issue a > structured note with face value FP and interest > rate of 2 * LIBOR. And then use the proceed sto > buy bonds worth 2FP. If you are issuing a > structured note of face value FP, then you have > cash worth FP. How can one use cash worth FP to > buy bonds worth 2FP? > > Refer CFA notes, book 5, pages 451 and 452.