yeah…but again…you only get the answer assuming the payment were semi- annual… even though it says 1-year swap… but you’re right - could’ve figured the right answer was close to the +50k …
360-days: 5.4%…discount factor…0.94877 I used 1/(1+.054*180/360)^2. Should I have used just 1/1.054 to calculate the discount factor? If I use the former, I get the discount factor as .94811
barthezz Wrote: > > The London Interbank Offered Rate (LIBOR) yield > curve is: > > 180-days: 5.2%. > 360-days: 5.4%. > > What is the value of a LIBOR-based payer swaption > (expiring today) on a $10 million 1-year 4.8 > percent swap? > A) 0. \> B) (50,712). > C) $25,356. > D) $50,712. i dont like this problem. doesnt say what the periodic payment dates are (quarterly, semi or annual). i simply assumed it was annual and calculated the discount factors, the periodic fixed rate and annualized it and compared against the swap strike. then calculated the payoff, which is roughly around 52,xxx. so only D could be the reasonable answer.
Good news is that on the exam you won’t have to calculate the discount factors. Schweser Book 5 Page 293. Read the professors note in between that example.