Question
What does Pot of Greed do?
(I no longer need an answer to my original question)
A plain vanilla interest rate swap is arranged. The notional principal is N = 10 million dollars and the swap will be for six years One party, the floating rate side of the swap, will make payments at the end each year, calculated by multiplying the the notional principal by the actual short term interest rate (for funds to be lent 1 year) that was posted at the beginning of that year. The other party, fixed rate side of the swap, will make payments at the end of each year, calculated by multiplying the notional principal by a fixed ate r Suppose the current term structure of interest rates is ( s1, s2, s3, s4, s5, s6 ) = 0.07, 0.073, 0.077, 0.081, 0.084, 0.088) These rates are for funds to be lent starting now but for different lengths of time For example, the first rate is for funds to be lent for one year, starting now, and the second rate is for funds to be lent for a period of two years, starting now Interest is compounded annually Let do,j be the discount factor for the period from now to J years from now cash received years from now is multiplied by do,j to determine the present value of the cash. Assuming the above rates and annual compounding of interest, 0,1 = 0.9346 0,2= 0.8686 0,3= 0.8005 0,4= 0.7323 0,5 = 0.6681 0,6= .6029 What is the present value of the fixed rate portion of the swap?
Explanation / Answer
With regards to the notorious online game called Yugioh, ‘Pot of Greed’ is such a card that aids the player to draw the additional two cards from the deck and add the same to the cards in the hands of the Player already. It is hence known as the ‘Magic card’. The cards so picked up from the Deck is not supposed to be revealed to the Opponent and in the occasion, it is revealed, then no card is to be discarded and upon the activation of the same, it is to be sent to the Graveyard, as per the Game rules.
