Answer Happy

Based on Fixed income arbitrage in Financial Crisis(C):Ted
Spread and Swap Spread in November 2008
Should Albert Mills do this trade? Back up your answer with the
following analyses:
1. Write out the initial transaction
and cash flows for the trade based on entering the swap, purchasing
the Treasury bond, and borrowing using the repurchase agreement. Be
sure to use discount pricing for the repurchase agreement and to
take the 2% haircut into account. Assume that the repurchase
agreement will last 14 days. Assume $1 billion notional principal
for the swap and $0.97 billion pre haircut face value and $1.04
billion price for the Treasury bond. Please use the rounded numbers
from above and presented in the case. Assume that initial LIBOR is
set at 2.51% and is fixed for three months (through February 2009),
beginning on the swap date (November 5, 2008). The fixed swap rate
is 4.256%. The coupon on the Treasury is 4.5%.
PLEASE DON'T RANDOMLY
COPY-PASTE THE WHOLE CASE AS I HAVE ASKED THIS QUESTION SEVERAL
TIMES AND ALL THE EXPERTS ARE DOING THE SAME THING. PLEASE READ THE
QUESTION CAREFULLY AND THEN ONLY ANSWER. ANY HELP WOULD BE HIGHLY
APPRECIATED.