# Stupid.......Stupid, Stupid, Stupid

Look at this… So gay My answer was 22500, basically 5%-4%(NP)(.5) + 4.5%-4%(NP)(.5) (half a year) I love how the 182 and 183 are divided by 360… WHAT??? I mean my answer was close enough, but this is retarded… Schweser A firm purchases a one-year cap with a strike rate of 4%, a notional principal of \$3 million, and semiannual settlement. The reference rate at the initiation of the cap is 5%, falls to 4.5% at the next settlement and then to 4% one year after the cap’s initiation. The total payoffs (without discounting) over the maturity of the swap would be: A) \$25,500. B) \$22,792. C) 7,583. Your answer: B was correct! Since the number of days is not given for each period, approximate it with 182 in the first period and 183 in the second period. Remember that payments are made in arrears. First payoff = 15,167 = \$3,000,000 × max(0, 0.05 – 0.04) × (182/360). Second payoff = \$7,625 = \$3,000,000 × max(0, 0.045 – 0.04) × (183/360) Total = \$22,792 = 7,625 + 15,167

Come on, it’s a Schweser question. You should already know the exam is a not a calculate to the 4th decimal point accuracy type of exam. Especially at L3.

“gay”? Really? How old are you, 12?

I don’t see the word LIBOR anywhere , so I would at least hesitate before presupposing a 0.5 on the time

The exam will specify whether it’s 182/365 or 1/2 years. CFAI has always been clear on small details like these (in L-1 & 2) , makes no sense to fret about such details!

You might be a little high strung on this one. If you run the calc on 180/360, you get \$22,500. On the exam you would get this answer, check your numbers twice and pull the trigger on “B” anyway. The fact that Schweser is making you aware of this minutia of detail and your response to it means you will have a heightened sensitivity to it on exam day…and will get it right! NAIL IT

> “gay”? Really? How old are you, 12? I am in fact, the doogie howser of CFA. Just in case anyone confuses the word “gay” or “retarded” with a slur against homosexuals or the mentally challenged, I say "Really, how old are you, 12? Both are used tongue in cheek. >I don’t see the word LIBOR anywhere , so I would at least hesitate before presupposing a 0.5 on the time A firm purchases a one-year cap with a strike rate of 4%, a notional principal of \$3 million, and semiannual settlement. ok, so the period is a year he reference rate at the initiation of the cap is 5%, falls to 4.5% at the next settlement and then to 4% one year after the cap’s initiation 3 Payments in a year? One at initiation, one in the middle, one at the end…gotta be 6 month intervals. Plus it says “semiannual settlement” >Come on, it’s a Schweser question. You should already know the exam is a not a >calculate to the 4th decimal point accuracy type of exam. Especially at L3. >You might be a little high strung on this one. If you run the calc on 180/360, you get >\$22,500. On the exam you would get this answer, check your numbers twice and pull >the trigger on “B” anyway. Indeed, i jsut thought is pretty goofy that we are dividing 365 total days by 360

rolo , u r right. It is wierd and looks wrong