I’ve been trying to figure these two out for a while… 119) Question is in the book Answer: Using the new U.S. term structure to derive the present value factors: Z180(360) = 1 / [1 + 0.042(180 / 360)] = 0.9794 Z180(720) = 1 / [1 + 0.048(540 / 360)] = 0.9328 The present value of the fixed payments plus the $100M principal is: $4.4M × (0.9794 + 0.9328) + $100M × 0.9328 = $101.69 million I get most of the answer, I just dont know where they are getting the 4.4M as the fixed payment and why are they adding .9794 + .9328 120) Again, question is the book. Too difficult to copy here Answer: Use the new Mexican term structure to derive the present value factors: Z180(360) = 1 / [1 + 0.050(180 / 360)] = 0.9756 Z180(720) = 1 / [1 + 0.052(540 / 360)] = 0.9276 The present value of the fixed payments plus the principal is: 0.0507 × (0.9756 + 0.9276) + 0.9276 = 1.0241 per peso where are they getting the .0507 and why adding .9756 and .9276. any help would be appreciated.
4.4 M must be the fixed payment rate per period * 100 Million principal. and that is the way you calculate the fixed. [Z360 * Fixed Rate + Z720 * (1+Fixed Rate)] * 100 Million. Looks like you have a fixed rate of 4.4%? 0.0507 again looks like fixed rate.
yeah i dont see a 4.4% or a 5.07% anywhere in the problem and i went to find the rate that would arise from the swap instead to the fixed payer…its not 4.4%. I am guessing maybe they had to do a FRA? but i think they would have included that in the explanation. Its weird…Schweser usually is pretty good at saying where they get each number.
4.4 is really simple 4.0% 360 days, 4.5% 720 days – calculate the fixed rate: (1-1/1.09) / (1/1.04 + 1/1.09) = 4.4%
ahh ok…i wasnt even looking at that first chart… thanks