Sir can u please explain me part b of this question.
The solution in bpp is like
Payments libor/2+0.6%
Receipt under vanilla swap libor/2
Payment on fixed element (5.4/2)=2.7%
Net payment. 3.30%
Effective annual int rate=(1+six month rate)square-1=1.033square -1=6.7%
R they dividing by 2 everything because its 6 month i mean libor and basis point 120 as well please explain me but more. Thanks
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katmai 12/09
11y ago#1Yes - they have divided by 2 because it is for six-months.
(However I would not worry too much about this question - it was set by the previous examiner and he did not last long! The current examiner took over in 2010, and his questions are much more important.)
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