it will be 0.9652… since it is at 270 days that you will get principal back…
jackofalltrades Wrote: ------------------------------------------------------- > What is the logic behind this calculation: > > “Received Fixed = 0.022 * (0.9886+0.9652) + 0.9652 > = 1.00818366” > > Is there another more intuitive way to arrive at > the value of the fixed instrument? look at my calculation above - i can’t get into all those factor calculations either. I strongly feel my way is better - its just doing some basic DCF…
cpk123 Wrote: ------------------------------------------------------- > it will be 0.9652… > > since it is at 270 days that you will get > principal back… Agreed. I think the question is slightly off in its calculation.
pfcfaataf, wow… that makes a lot of sense! Why do I need a swap to do that? I could do it myself if my broker allows for shorting against my own portfolio without requiring margin, I think it’s called shorting against the box…take the proceeds and invest in a fixed return. True, but let us see how to do it as a swap. To do it as a swap, who sells what? I still keep my portfolio, right? I sign a swap agreement where the return on the portfolio is yours (positive or negative). You agree to pay me a fixed return of 4.4% by year end. I don’t have to do anything…just sit and watch…what do you have to do? Also, sit and watch? By year end, portfolio is down 20%. You pay me for the loss. You do some calculation and pay me the interest on my initial portfolio value. You lost quite a bit. Assume by year end, portfolio is up 20%. I pay you with cash all that gain. You do some calculation and pay me the interest on my initial portfolio value. Sounds more convenient than doing it myself! Is that correct?
CFABLACKBELT Wrote: ------------------------------------------------------- > cpk123 Wrote: > -------------------------------------------------- > ----- > > it will be 0.9652… > > > > since it is at 270 days that you will get > > principal back… > > > Agreed. I think the question is slightly off in > its calculation. Nvm, there is a sslight rounding error in my calculation, but its not due to picking .9652 over ,9886. See bpbuldog’s calc. He took it out a few more decimal points.