Darien

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

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.

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

skycfa

semi-annual !

former

I say B...I have to draw out the diagram in my head as they have it in the text to remember how to do these, but here is the derivation:

Leveraged Floater:
-(1.2)(L)(12MM)

Bond:
+(1.2)(12MM)(.06)

Swap:
-(1.2)(12MM)(.044)
+(1.2)(L)(12MM)

Netting we get:

(1.2)(12MM)(.06-.044) = $230,400 = B

best,
TheChad

Analyze_This

semi-annual....rtfq

Roflnadal

level3aspirant Wrote:
-------------------------------------------------------
> i feel there something missing out here ... JMI
> has a 'pay floating' obligation in first place.
>
> to hedge, he must take the 'receive floating, pay
> fixed' side. there's no info on any receive
> floating leg of transaction. ???


They have a floating obligation from the leverage floater. to fully hedge they purchase a swap but the fixed leg needs to be hedged as well with a fixed bond purchase.

Not very well worded question really.

canadiananalyst

Thanks chedges..