DSquaredSlim

scratch that

giorgio10

Why does it look like there is only one payment for the floating?

19831985

godlike explanation.

RepoToronto

I got positive $2,114,010 to the receive fixed

needhelp1700

ex:

days:
90 1.42%
180 1.84%
270 2.12%
360 3.42%

45 days later:
45 2.21%
135 2.62%
225 3.73%
315 4.92%

Notional Principle of 250M with a 5.15% fixed rate. enters into a one year pay floating LIBOR (rates above) and receive fixed interest rate w/quarterly pmts.

Thank you!

jarobi04

can you give post the example that you got wrong?

scarecrow

Job71188, thanks so much for the explanation above, it makes a lot more intuitive sense than how the CFA explains it. However, I tried applying the process above to the swaps questions on the online sample cfa exams and it didn't give me the right answer. would you mind posting 2-3 more examples, especially in the format of the sample exams or the EOC qs?

Thanks!

MiniMe7

Yea sorry. I thought the explanation was getting long and I hoped most people would remember that.

On currency, if it's a $10,000,000 between $ and Euros, with an exchange rate of $1.25/1 Euro with both fixed, I would value $10,000,000 bond at US rates. Then I would value Euro bond with Par value of 8,000,000 Euros and use respective Euro rates.

You would go through the same steps in valuing the bonds at some point in future. Then would multiple the Euro value by the current exchange rate, and then subtract.

redskins44

Oh and the most important thing to remember for equity swaps, is payments from the equity payer is not decided until the period end. This is different from other swaps where at t=0, you know the payments of t=1.

Lets say a index pays semi annually against a fixed rate of 5%, you value the 5% bond the same way as normal. To value the equity, you take Current Value of Index/Beginning Value. That is the equivalent interest rate the person will pay on the notional principal. That is not an annualized rate though!

So if index starts at 1000 and 180 days in, it is at 1100, the equity payer makes a 10% interest payment (not 5%).

Also, notional principal is reset at each equity payment. So if at 360 days into it, index value is 1200, the interest payment would be 1200/1100 = 9.1%.

maryli

Dreary Wrote:
-------------------------------------------------------
> ---------
> Let's say its a currency swap. All you do is value
> each bond in their respective currencies. If one
> or both are fixed rate, you value them like normal
> bonds. If one or both are floating, you use the
> floating method above. Then you take the value of
> one of the bonds, multiply it by the exchange
> rate, and subtract.
> ------------
>
> Yes but be careful not to forget to set the
> notional to be equivalent to original. So, if you
> come up with 1.25 euros as the price with the
> initial exchange rate at $0.89/euro, you cannot
> just convert the 1.25 euros using current exchange
> rate. What's your equivalent notional?

I like your thinking sir.