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Complete Lecture notes- PORTFOLIO MANAGEMENT $26.76   Add to cart
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Class notes

Complete Lecture notes- PORTFOLIO MANAGEMENT
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  • Course
  • Portfolio Management
  • Institution
  • Birkbeck, University Of London (BBK)

The document includes all lecture notes from the Portfolio Management course in the final year of BSc studies. Suitable also for Master's students. Covers: Equity, Equity valuation, Portfolio construction using Equity, Bonds, Bonds valuation, Portfolio construction using Bonds, Options, Options ...

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Document information

  • May 11, 2022
  • 3
  • 2021/2022
  • Class notes
  • Ranch patel
  • All classes

Subjects

  • portfolio
  • portfolio management
  • business
  • options valuation
  • options
  • futures contracts
  • forward contracts
  • forwards
  • futures
  • equity
  • stocks
  • stock valuation
  • bond valuation
  • investor types
  • risks
  • risk t
  • birkbeck

Written for

  • Birkbeck, University of London (BBK)
  • Unknown
  • Portfolio Management
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Portfolio Management

Interest Rate SWAPS
Interest Rate SWAPS




SWAPS

Interest Rate swaps (cont’d)

• Company A because of it higher credit rating has an absolute advantage of 2% in Fixed rates
but only a 0.5% (50 basis points) advantage in floating rates.
Party A Party B Absolute advantage Comparative
advantage

Credit Rating AAA BBB

Fixed-rate 10% 12% Party A (2%) Party A (1.5%)

Floating -rate LIBOR+0.25% LIBOR+0.75% Party A (0.5%) Party B (1.5%)


• Company A has a 1.5% comparative advantage in floating rates but company B has a 1.5%
comparative advantage in fixed rates.
• Swap therefore feasible if A prefers to have floating rates and B prefers to have a fixed rate.

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