cfai mock #94 morning one more question

why, question, morning, because

hey guys…just a quick question…
Should we use 180/360 to calculate the company pmt for the swap instead 180/365 ? because it clearly says Floating pmt is based on 360 days, and Company is paying LIBOR+.50 which is floating rate.
15milx5.25%x180/360
why we use 365 instead ???

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YouCanDoIt

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发表于 2013-4-2 14:13 | 只看该作者

it states that fixed payments are based on 365 days in a year….and in the swap that he has entered…he has to pay a fixed rate (5.25%) on EUR 15 mil.
hence fixed rate payment : 0.0525 x 15,000,000 x 180/365
to the bank he has to pay 4.75 (libor) + .005 (50 basis points) on EUR 15 mil and he receives ( from the swap agreement) only 4.75 (libor when the swap was initiated) on EUR 15 mil….these are floating rate payments and will be made on a basis of 180 days
hope this helps

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spartan1

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发表于 2013-4-2 14:14 | 只看该作者

Karan…
as you mentioned…”to the bank he has to pay 4.75 (libor) + .005 (50 basis points) on EUR 15 mil and he receives ( from the swap agreement) only 4.75 (libor when the swap was initiated) on EUR 15 mil….these are floating rate payments and will be made on a basis of 180 days”…..
do you divide by 365 or 360 ? Answer key is dividing 365….but quetion says company use 360 for floating rate (in this case, LIBOR + .50). i m confused.
Thanks again.

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prashantsahni

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发表于 2013-4-2 14:15 | 只看该作者

ok….in the ques, there are 3 different situations:
1) fixed rate payment of the swap contract (which the person has to pay to the counterparty): on the basis on 365 days
he pays : 5.25% x 15,000,000 x 180/365
2) receiving a floating rate payment from the counter party @ libor (which in this case is 4.75% at the initiation of the contract): on the basis on 360 days
he receives: 4.75% x 15,000,000 x 180/360
3) pay the interest on the loan @ libor + .5% ( this is a floating rate payment coz libor can change after the setlement date): on the basis on 360 days
he pays: (4.75% + .5%) x 15,000,000 x 180/360
1) is a fixed rate payment
2) and 3) are floating rate
in the answer key the fixed rate payment is divided by 365

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