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----- Original Message -----
From: Stig O <olausson@xxxxxxxxxx>
To: <Realtraders@xxxxxxxxxxxx>
Sent: Tuesday, November 02, 1999 10:06 AM
Subject: Sv: Break out in Bonds
> I just got this question below. Since I am just a dumb technical
analyst I don't know the answer to it.
>
> I know, though, that we have a lot of smart guys on the list. I am
also curious to the answer.
>
> Is there an easy way to convert interest rate to price?
>
> regards
> stig
>
>
> >If I have an investment loan for say $1,000,000 at say 7% variable
for the
> >next 5 years, how does this relate to the bonds? Could I take an
opposite
> >long term t-bond contract position, such that if my loan interest
rate
> >doubled to say 14%, the "profit" in the bond contract would offset
the
> >"loss" due to increased loan repayments? Is this even possible,
i.e. to
> >lock in the interest rate on my loan in this way?
You'd have to match maturities and risk characteristics. And you'd
still have a problem: If rates dropped, your note payments wouldn't
drop but you'd have a margin problem. You might be able to do
something with way out of the money options as insurance against the
kind of disastrous rate increases that you're concerned about. Or you
can do an interest rate swap, i.e., sell your variable rate note for a
fixed rate note.
Regards,
Mike
---
Aboard 35' Edel Cat "Moongate" in New Bern, NC
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