Scary

Will someone please look at the Qbank QID 10510 and explain how they get to the answer for Question 2?? I can’t post it here. There’s a really scary looking interest rate tree and price tree… gave me the shivers…

Its pretty simple if you think about it. The guy has a floating rate liability. To turn that into fixed, you sell the floor and buy the cap. Selling the floor nets you $258,510 Buying the Cap nets you $133,377 You come out = 258,510 - 133,377 = $125,133

dammit… you should have seen my crazy calculations…i was confused because they said to use table 1 and 2… i think i created some of my own strategies mixing up the interest rates with the cash flows - completely ignoring table 2… *oh dear god - please help me to think straight on june 7th*

yeah, totally throws you off with the gigantic trees and basically gives you the answer in table 2…

If I had to use either of those trees I would have cried.

are you reviewing while working questions? I seem to forget things when working just questions