#### Steve Jobs

##### Active Member

Also assume the payments are at 6,12,18 months

I find the calculation of B(fixed) and intuitive and logical:

B(fixed): First Payment + Second Payment + Third Payment

First Payment = PV of [PMT(fixed) at end of month 6]

Second Payment = PV of [PMT(fixed) at end of 12 month]

Third Payment = PV of [PMT(fixed) and Notional at the end of 18 month]

For B(floating), the only difference I see is the PMT amount which varies depending on Libor rate, so I will adjust the same B(fixed) formula by using forward rates to:

B(floating): First Payment + Second Payment + Third Payment

First Payment = PV of [Spot libor * Notional]

Second Payment = PV of [6 month forward libor at the end of 6 month* Notional]

Third Payment = PV of [6 month forward libor at the end of 12 month* Notional]

But the solutions provided for the practice questions uses this formula which I don't understand at all:

B(floating) = Notional + (Notional *( Libor at last payment date / 2)) * e^(spot libor * 6/12)

So my question is whether my adjusted B(floating) formula is correct or not?, and what is the logic behind the provided formula of the B(floating) in the provided solutions?