gargi.adhikari
Active Member
In reference to : P1.T3. Hull, Chapter 4 (Financial Markets & Products),
https://learn.bionicturtle.com/topic/instructional-video-hull-chapter-4/
In reference to the screen shot below:-
If the goal was to compute the net cash flow at the end of 3 years.
Why did we not simply do the below..? ( I know I am missing a point here- which is why am raising this question- please pardon my ignorance
)
Cash Flow at the end of 3 years ( LIBOR rate - FIXED rate ) * time since t=0
=> (4.5 % - 4% ) * (3 years) * 100M = > .5% * (3 years) *100M = $1.5 M instead of calculating for 3.25 years to $.1250 M and then discounting to $ .1236M ?
I guess I found the verbiage a bit confusing or at least I can probably attribute to my unfamiliarity of the FRA calculations...
can someone at least confirm if the problem above meant the FRA payments will commence at the end of 3 years for a 3 month period ?
I guess I misunderstood that the FRA payments were being made for 3 years on a quaterly basis ( 3 month each) which is what made me think why were we not taking into account payments for the prior period of 3 years...could someone please confirm this...?
https://learn.bionicturtle.com/topic/instructional-video-hull-chapter-4/
In reference to the screen shot below:-
If the goal was to compute the net cash flow at the end of 3 years.
Why did we not simply do the below..? ( I know I am missing a point here- which is why am raising this question- please pardon my ignorance
)Cash Flow at the end of 3 years ( LIBOR rate - FIXED rate ) * time since t=0
=> (4.5 % - 4% ) * (3 years) * 100M = > .5% * (3 years) *100M = $1.5 M instead of calculating for 3.25 years to $.1250 M and then discounting to $ .1236M ?
I guess I found the verbiage a bit confusing or at least I can probably attribute to my unfamiliarity of the FRA calculations...
can someone at least confirm if the problem above meant the FRA payments will commence at the end of 3 years for a 3 month period ?
I guess I misunderstood that the FRA payments were being made for 3 years on a quaterly basis ( 3 month each) which is what made me think why were we not taking into account payments for the prior period of 3 years...could someone please confirm this...?
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