mik82

me too if I don't follow my own advice :-)

cityboy

newsuper Wrote:
-------------------------------------------------------
> yeah, rtfq TheChad!


Hence the reason I will probably be repeating next year


Best,
TheChad

infinitybenzo

chedges Wrote:
-------------------------------------------------------
> A.
>
> Its a leveraged floater so the swap and fixed bond
> cant have the same NP as the leveraged floater. it
> needs to be x up by 1.2.
>
> The swap will have a 14.4m NP with Libor on the
> one leg and fixed on the other of 4.4%. This libor
> will cancel with the leverage floater libor.
> leaving the two fixed rates of 6% and 4.4% on a NP
> of 14.4m.
>
> The annual receipt is 230,400. The semi-annual
> receipt is 115,200.


Excellent explanation. thanks.

dyga

Back to this question. How does this not require capital from JMI? They issue a 12MM bond but buy a 14.4MM bond. Where does the 2.4MM come from?

Darien

so they raise the 12mill then do a 14.4mill swap and buy 14.4mill worth of bond paying 6% annually?
thanks

ohai

Yeah I dont get it. it says in the book that "no capital in required to engage in this transaction".

I dont see how that is possible. You issue bonds. You get 12MM cash. Now you need 14.4MM in bonds. You have 12MM in cash. Are the bonds are a deep discount? WTF?

Analti_Calte

Is A the final answer?

Is this $12 million the notional principal?

ll11

i saw a leveraged floater in the men's room earlier

PalacioHill

the inverse floater is next to it.

pennyless

deriv108 Wrote:
-------------------------------------------------------
> Is A the final answer?
>
> Is this $12 million the notional principal?


yes $12 mio is the face value,
we do not know the price at which it was issued!!!

ref. CFAI text (Volume 5, page around 489)