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Hi @taunk, The par rate is that coupon rate (C) that causes the bond price to sell at par. That is, it is that coupon rate such that Bond Price = Par. The Swap rates are all par rates. Using the formula given: C/2*[d(0.5) + d(1.0) + d(1.5)] + d(1.5) = 1 C/2*[0.99700 + 0.98510 + 0.96460] +...

Hi @Namrata2001, You need to calculate in the same fashion as @Deepak Chitnis and David have calculated above: 5X + 8(1-X) = 4.5 X = 1.66667 1 - X = -0.66667 In this situation, the long 5% coupon plus short 8% coupon replicate the 4.5% coupon. However, the price is: 1.6666*$97.5 +...

Hi David, In your study notes as referenced above, I don't understand how you get Years from last coupon = 2.5 years in your example. Would be grateful if you would elaborate:) Thanks! Jayanthi

Thanks a lot Nicole - I was just explaining Alan's solution to him - did not know that he was an unpaid member. Jayanthi

Hi @Deepak Chitnis , I like your approach of creating a barbell portfolio of 5% coupon at $97.5 and 8% coupon at 103.2, to equate the bullet. Infact, this was what crossed my mind in approaching this problem. However, I was not very sure. However, the thing I don't understand in your TVM...

Hi @Jogarmenina and @Almondchoco - I could easily open the link. Maybe it has something to do with your browser settings.

Hi @arkabose, Please ignore my earlier message: Got it: E(X^2) = 55^2*0.4 + 45^2*0.6 = 2425, E(X) = (55*0.4 + 45*6) = 49. Therefore E(X)^2= 49^2 = 2401 and the rest follows. Thanks:)

Hi @arkabose, How did you get the value of E(X^2) - E(X)^2 = 2425 -2401 = 24. I have to brush up the binomial distribution. Thanks:)

Thanks for taking the time to search it out for me, David - appreciate it:) Thanks Nicole for pointing me out to the screenshot and the browser link:) Jayanthi

Hi Nicole, The link on Page 5, PQ set, Saunders Reading 22 is not working. I did do a search for it but could not find it. Would be grateful if you would fix it. Thanks a tonne:) Jayanthi

Thanks a lot, Nicole - appreciate it:) You can let it accrue towards my FRM II package. Jayanthi

Thanks David - appreciate it:) Jayanthi

Hi David, Two more questions regarding the above: (1) How do you get the 10.25% forward semi-annual? I get it by: (1 + r/2)^0.5 = e^(.10*0.25) (1 + r/2)^0.5 = e^0.025 = 1.02532 (1 + r/2) = 1.02532^2 = 1.05127 r/2 = 1.05127 - 1 = .05127 r = .05127*2 = .10254 = 10.254% However, I am not very...

Thanks David - much appreciate it. Just one more question: The cash flows at t = 0.25 are floating: $4.80 and Fixed: $6.00. However, is it not true that the actual timing of these cash flows are at 0.333. Ultimately, of course the Net Cash flows are discounted at the discount factor...

Thanks a lot, Nicole - much appreciate it - will do it in the future:) Jayanthi

Hopefully, it will be specified as to whether to use continuous compounding or discrete compounding to discount the cash flows:) Thanks! Jayanthi

Hi David/Nicole, I am very sorry to be posting my query on this separate thread. It so happens that there is no student forum thread for all questions from Hull in this PQ set. Hull.07.03: A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the swap, 6-month...

Hi Vince, $109.43 (which is the full price as of 1/1/2013) is the PV of all coupons from 7/1/2013 to 7/1/2016 plus PV of the Face value as of 7/1/2016. In order to compute the full price as of the settlement date (5/16/2013) we need to compound this forward = $109.43*(1.02)^135/180. So this...

Hi @VinceL, Par = $100 YTM = 2% (semi-annual) Coupon = 4% (semi-annual) Coupon = $4 (semi-annual) Price at last coupon (given) = $109.43 Full price (on settlement date 5/16/2013) = ($109.43)*(1.02)^135/180 = $111.07 This assumes that the Full price on 1/1/2013 is reinvested at the 2%...

Hi @Shazam023, e^(-0.02)*(3/12) = 0.995012 and 1/(1 + 0.02)^3/12 = 0.995062. The former uses continuous compounding and the latter uses discrete compounding (annual, semi-annual compounding etc.). Hull always uses continuous compounding in his interest rate calculations. However, Tuckman and...