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Complete Lecture notes- PORTFOLIO MANAGEMENT £20.39   Add to cart
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Lecture notes

Complete Lecture notes- PORTFOLIO MANAGEMENT
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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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  • May 11, 2022
  • 3
  • 2021/2022
  • Lecture notes
  • Ranch patel
  • All classes

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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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