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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...

Hi @Shazam023, The forward contract on the underlying zero coupon bond has a maturity of 4 years, today. The zero coupon bond by itself has a maturity of 1 year from today. And so, at the end of four months, the forward contract expires and delivers the underlying zero coupon bond which has a...

Hi @Shazam023, The relationship between the Forward contract on an investment asset, with price S(0) that provides no income is given by: F(0) = S(0)*e^rT Here, T = Time until delivery date in a forward (or futures) contract (in years) r = risk-free rate of interest per annum with continuous...

Hi @Kanwar Please refer to Options, Futures and Other Derivatives by John Hull and Sankarshan Basu, Eighth Edition. There is a lot of material on these interesting products! Thanks Jayanthi

Hi @RiskGuy, Just hazarding a guess here: According to the interest rate parity theorem: (1 + r(USD)) = [1/S(t)]*(1 + r(CHF))*F(t) i.e. Rate on US investment = Hedged return on foreign (CHF) investment Where 1 + r(USD) = 1 plus interest on US CDs for the foreign investment at time t S(t) =...

Hi @RaamZen, Question: 173.2. A portfolio manager wants to hedge her bond portfolio this is worth $30 million and will have a duration of 6.0 years at maturity of the hedge in a few months. The relevant U.S. Treasury bond futures price is 95-12 and the cheapest-to-delivery (CTD) bond will have...

Hi @Shazam023 , Every futures exchange in the US has an affiliation with a clearing house. The primary role of the clearinghouse is to provide the financial mechanisms to guarantee performance on the exchange's futures and options contracts. To accomplish this, the clearing house substitutes...

Hi @singhr15, Traditionally, OTC derivative transactions have been bilaterally settled between two counterparties. However, this involves credit risk. The importance of CCP's came into existence after the 2008 Lehman Brother's bankruptcy crisis. Lehman had large positions in instruments created...

Hi David, Just a small typo above (copied below): In your example, 9.0 is the quoted price because the "discount rate" is 9.0% per annum: $100 * 9.0% * 180/360 = $4.50 interest and therefore a cash price of $100.00 - $4.50 = $95.50; i.e., the buyer pays $95.50 (cash price) and receives back...

Hi Nicole, Thanks a lot for your clarification:) Just wanted to ask you - do most candidates enroll with BT immediately after the Part I Exam? or do they wait till the announcement of the FRM Part I results? Also, would be grateful if you would let this $15 prize accrue:) And just one more...

Hi Nicole, Thanks a lot - I already have the Professional package for FRM - Part I (so I guess this is already an upgrade, if I am not mistaken:)). What exactly is an upgrade? Is it an upgrade from FRM - Part I to FRM - Part II? Or an upgrade within say the FRM - Part I or Part II? Jayanthi

Hi Nicole, Thanks a lot - appreciate it:) If I were to let the $15 prize accrue, can it be used later as a waiver towards purchase of the Bionic Turtle - FRM - II package? Jayanthi

Hi David/Nicole, The reason I am posting this question and answer here is that the link on page 72 is not working:) Question 28.2 Assume a ZERO-COUPON bond with par value of $100 an yield (YTM) of 6%. a) If the maturity is five years (5 years), use duration to find the DV01. b) If the...

Hi Nicole, The links on Pages 59, 64, 66, 68, 70, 72, 76 of Tuckman's PQ set are not working. Would be grateful if you would fix it:) Thanks! Jayanthi