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the lecture says :
lock in rate = libor + premium + change in the basis
however in this question,
i get the correct answer by just libor + closing basis
not sure where i am going wrong
Sorry, but I do not know which question you are referring to ( jun-5 A – which June?)
You don’t get the correct answer by just LIBOR plus closing basis.
You either take:
Closing LIBOR + closing basis + premium = 3.5 + 0.171 + 0.6 = 4.171%
or you take:
Current LIBOR + (change in basis) + premium = 4 + (0.171 – 0.6) + 0.6 = 4.171%
The examiners answer had done it the first way, but either way gives the same answer.
However, when you do not know the closing LIBOR you can only then do it the second way.
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