Leveraged float rate swap question understand, principal, question, interest, balance

jcole21

Exhibit 2 - 2.3.1 Reading 44 example

If KAT issues leveraged note with principal FP that pays interest 1.5 Libor and
KAT then invests proceeds to buy bond with 1.5 FP face value.

so where does KAT get the balance 0.5 FP? what am I missing?
Text book says " KAT put up no capital to engage in this transaction.." I don't understand.
Can anyone help? Thanks.

nannan66

Thanks Janakisri for explaining, it makes sense now.
BTW I never said 'impossible' anywhere.

Chuckrox

Discussed many times recently. Just go with the flow. Buy 1.5 FP notional value of bonds at 1.0 FP price . And don't say its impossible. It is very possible , for a certain term , YTM , it is possible.