Consider a 5-year $100 fixed notional equity-for-Libor swap, where the stock price at inception was $35. The swap is based on semi-annual payments on both legs, with an Actual/360 convention for the Libor leg. Two years after inception, on the fourth reset date, the stock price is $40. Assume that the number of days in the next period is 183, and the six-month Libor rate on this reset date is 10%. What is the value of the swap from the point of view of the receiver of equity return Zero O +14.29 +4.29 O-14.29

Consider a 5-year $100 fixed notional equity-for-Libor swap, where the stock price at inception was $35. The swap is based on semi-annual payments on both legs, with an Actual/360 convention for the Libor leg. Two years after inception, on the fourth reset date, the stock price is $40. Assume that the number of days in the next period is 183, and the six-month Libor rate on this reset date is 10%. What is the value of the swap from the point of view of the receiver of equity return Zero O +14.29 +4.29 O-14.29

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider a one-year interest rate swap with semi-annual payments, based on 30/360 day count convention. The term structure of LIBOR spot rates is given as follows: 6-month LIBOR at 7.2%, and 12-month LIBOR at 8.0%. What is the annualized fixed rate on the swap? A. 7.42%. B. 7.93% C. 7.84%. D. 7.56%.
Consider a plain vanilla interest-rate swap with an effective date of January 1 of year 1, notional amount of $100 million and quarterly payments. The reference rate is 3- month LIBOR. On January 1, the 3-month LIBOR is 3.0%, and 3-month Eurodollar futures maturing on June 30 and September 30 of year 1 are quoted as 96.6 and 96.2. Find the present value of the floating payment in the third quarter. $899,104 $915,322 $931,067 $946,482
Consider a plain vanilla interest-rate swap with an effective date of January 1 of year 1, notional amount of $100 million and quarterly payments. The reference rate is 3- month LIBOR. On January 1, the 3-month LIBOR is 3.5%, and 3-month Eurodollar futures maturing on June 30 and September 30 of year 1 are quoted as 96.0 and 95.8. Find the present value of the floating payment in the third quarter. A: $1,042,190 B: $1,055,386 C: $1,067,482 D: $1,075,903
Use the data from Q5, and given the following annualized interest rates: r(30) = 4.0%; r(120) = 4.5%; r(210) = 5.0%, and; r(300) = 5.5% sixty days after the initiation of the pay-fixed swap. If the pay-fixed and receive-floating swap is to mark-to-the-market now, who pays whom and how much? Use $5m notional principal. Pay-fixed leg pays $24,214.41 to pay-floating leg. Pay-floating leg pays $24,214.41 to pay-fixed leg. Pay-fixed leg pays $25,455.45 to pay-floating leg. Pay-floating leg pays $25,455.45 to pay-fixed leg.
An investor holds the fixed-payer position in a 7.44%/LIBOR swap with $1M notional principal, semi-annual payments, and exactly one-year remaining. What is the value of the existing fixed-payer position, if the swap rate for new one-year swaps with matching notional principal is 3.57%/LIBOR
A 2-year swap based on LIBOR is entered into on 30/6/2010 with current spot 3 month LIBOR at 0.54%. The swap is based on a notional principal of $100m What is the swap rate?
Assume that Caterpillar’s return on investments is 2.50% per annum for the next four years. Next, suppose that Caterpillar and UBS (a financial institution) enter the following four year interest rate swap: Catepillar pays X% per annum fixed to UBS and receives LIBOR from UBS. All payments are made annually. Catepillar’s net return after it enters the swap is (LIBOR + 0.75%) per annum. In this case, Catepillar transforms ___________ into __________ and X equals to ________.a. Floating Rate Investment; Fixed Rate Investment; 1.75%b. Fixed Rate Investment; Floating Rate Investment; 3.25% c. Floating Rate Liability; Fixed Rate Liability; 3.25%d. Fixed Rate Investment; Floating Rate Investment; 3.50%e. Fixed Rate Investment; Floating Rate Investment; 1.75%
Suppose that a commodity’s respective forward prices for 1 year and 2 years are $150 and $158. The 1-year effective annual interest rate is 5.9%, and the 2-year interest rate is 6.6%. You will pay a fixed rate of $153.85906 in a 2-year swap and receive the floating rate. At the time you enter the swap contract, its value to you is... A.$0.0084 B.$–0.0084 C.$0.0051 D.. $–0.0051 E.$000000
Use the following information for questions 12-15: Under the terms of an interest rate swap, a financial institution has agreed to pay 10% per annum and to receive the 3-month LIBOR in return on a notional principal of $50 million with payments exchanged every 3 months. The swap has a remaining life of 14 months. The current rate being swapped for 3- month LIBOR is 11.8% per annum for all maturities. The 3-month LIBOR rate 1 month ago was 12% per annum. All rates are compounded quarterly.
An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at 3% is paid and 12-month LIBOR is received. An exchange of payments has just taken place. The one-year, two-year, and three-year LIBOR/swap zero rates are 2%, 3%, and 4% with continuous compounding. What is the value of the swap as a percentage of the principal when LIBOR discounting is used assuming that the principal is $100? (Note: You are expected to use continuous compounding/discounting. If you use discrete discounting the answer will be close) a. None of the other answers provided is correct. b. 2.88% c. 1.05% d. 0.00% e. 1.00%
An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at 2% is paid and 12-month LIBOR is received. A exchange of payments has just taken place. The one-year, two-year and three- year LIBOR/swap zero rates are 2%, 3% and 4%. All rates an annually compounded. What is the value of the swap as a percentage of the principal when LIBOR discounting * is used
A put option and call option with an exercise price of $50 expire in four months and sell for $5.99 and $8.64, respectively. If the stock is currently priced at $52.27, what is the annual continuously compounded rate of interest? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Rate of interest %

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