Hello,
in the solution of question 3, how do they issue a note of 5’000’000 and use the proceeds to buy a bond with face value 12’500’000 ???
Can anyone solve this problem? They use the same logic in example 3 on page 363 of the curriculum. In the text, the implication is that there is no capital put up.
I think this question has been discussed previouosly couple of times:
http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91112175
it should work in the case if they issue the 5mln bond for say 6,5mln and buy at a deep discount some fixed-paying junk-bond (perhaps CCC-rated) of a 12,5mln face value for the available 6,5mln funds…