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I had the table above neatly arranged but when I submitted the question it got jumbled into mess due to formatting. It should look like:
Opening ——— Interest (effective rate) ———–Pay/Receive——————-Closing
—X——————————X—————————–(X)/X——————————XI’m glad you mentioned it because it’s interesting!
However, I will heed your advice and calculate it the normal way and save the algebraic alternative for another time.
Much appreciated John.
John I think it posted the same question twice.
My amendment to the question was the 3rd last line:
(100- 3.6% +/- 0.5% = 95.9 and 96.9)
(I believe these will be the strikes we want to look for because it’s LIBOR + 0.5% and LIBOR – 0.5%.)
Disregard this please, I made an error. The corrected question is above. Sorry about that.
Hi John, yes I watched your lectures on this.
However I’m still a bit confused on this. Your notes on page 51 on Macaulay Duration day it’s ‘the average time it takes for a bond to pay its principal and interest’. How is this the time it takes to return half the value? I’m still stuck on this for some reason. The calculation is simple enough and I can answer questions on it’s just the theory that’s not clicking.
I know that payback appraisal is the time it takes to return the investment, without consideration for any cash flows after this has been returned.
Right. Fantastic. This is what I did and I was worried because I was getting a different answer to the examiner’s 0.8650.
Your lectures videos are brilliant, and you teach with so much enthusiasm, it really was a joy to learn this material for AFM from you.
It’s very much appreciated.
All the best.
