Many thanks for validating the final calculation, @patentpending1544. Do not have access to the actual values or calculations used to arrive at 0.6991 million, but given the values on screen, the bond component is valued at 10.0879 million and equity component at -11 million. So, the net value of the swap should be -0.912 million.
Questions: Q1) wouldn't the periodic return on equity include both the cap gain % plus the dividend yield? Q2) What happens if if the return on equity is negative?....does hedge fund have to,pay investment bank?
Hello Remlat: Q1) In this approach, we assume that the underlying either does not pay dividends, or, the dividends are reinvested back in the equity position. Q2) Yes, in that situation, the hedge fund pays to the investment bank.
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I am not sure if the value of 0.6991M is correct. I think the investment bank has lost .912m. The stock is up $1MM and the bond is only up $87K.
Many thanks for validating the final calculation, @patentpending1544. Do not have access to the actual values or calculations used to arrive at 0.6991 million, but given the values on screen, the bond component is valued at 10.0879 million and equity component at -11 million. So, the net value of the swap should be -0.912 million.
I still don't get it how to change the uncertain Re to a certain NP? can you please give more explanation? thank you !
Questions: Q1) wouldn't the periodic return on equity include both the cap gain % plus the dividend yield?
Q2) What happens if if the return on equity is negative?....does hedge fund have to,pay investment bank?
Hello Remlat:
Q1) In this approach, we assume that the underlying either does not pay dividends, or, the dividends are reinvested back in the equity position.
Q2) Yes, in that situation, the hedge fund pays to the investment bank.