I think that is right dinesh. That was my guess.
PEG answer is D… from Secret Sauce - “The implied valuation rule is that stocks with lower PEG ratioes are undervalued relative to high-PEG stocks, assuming similar risks.”
D is correct for the PEG question, although I take issue with the way you are supposed to interpret “relative lowest value”.
Can someone explain why we dont PV the equity amount? Is it because it the equity index fluctuates and we just assume the time value adjusts itself over time?
Sims, The value of the index is in real time. So the 3150 in the question above is for today. It would just be like checking the price on the S&P right now. The payment on the floating side will be the return for the quarter. The ending value of the last quarter for the index was 3000. So in real time, the VALUE of the floating side is 3150/3000 * 5,000,000. On the fixed side since your payments are coming in the future they need to be discounted in order to compare apples to apples. Then both sides can be netted and you can determine which side has value.
thx mwvt9 that clears it up.