- Joined
- 12/1/07
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I need some help! :sos: I am not sure how to apply the equation in the following example:
Assume a company will issue $1 billion in 10-year debt in 6 months
- Each basis point (0.01%) change in rates will raise borrowing costs by $800,000 per $1 billion issuance
- How much could borrowing costs rise over six months?
= 10 yr yield x sqrt(time) x Z score x volatility
5.00% x sqrt(0.5) x 1.645 x 17.65% = 103 bps
What is this 10 yr yield? Is it a forward rate, or the current one? Is the
volatility for 0.5 year? Any ideas?
Thank you!
Assume a company will issue $1 billion in 10-year debt in 6 months
- Each basis point (0.01%) change in rates will raise borrowing costs by $800,000 per $1 billion issuance
- How much could borrowing costs rise over six months?
= 10 yr yield x sqrt(time) x Z score x volatility
5.00% x sqrt(0.5) x 1.645 x 17.65% = 103 bps
What is this 10 yr yield? Is it a forward rate, or the current one? Is the
volatility for 0.5 year? Any ideas?
Thank you!