Consider a contract that caps the LIBOR interest rate on $10,000 at 8% per annum (with quarterly compounding) for 3 months starting in one year. This is a caplet and could be one element of a cap. Suppose the LIBOR/Swap curve zero curves are flat at 7% per annum with quarterly compounding, and the volatility of The 3-month forward rate underlying the caplet is 20% per annum. What is the price of the caplet? O A-5.19 OB. 6.84 OC.4.43 OD-5.75

Consider a contract that caps the LIBOR interest rate on $10,000 at 8% per annum (with quarterly compounding) for 3 months starting in one year. This is a caplet and could be one element of a cap. Suppose the LIBOR/Swap curve zero curves are flat at 7% per annum with quarterly compounding, and the volatility of The 3-month forward rate underlying the caplet is 20% per annum. What is the price of the caplet? O A-5.19 OB. 6.84 OC.4.43 OD-5.75

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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Suppose the 1-year and 2-year OIS rates are 2% and 4%, respectively. Consider an OISswap with two years to maturity where you receive 3% and pay the floating reference ratewith principal 1 million. If the payments are made annually with annual compounding, what is the value of the swap
An off-market forward contract is a forward where either you have to pay a premium or you receive a premium for entering into the contract. (With a standard forward contract, the premium is zero.) Suppose the effective annual interest rate is 11 % and the S-R index is 1000. Consider 1-year forward contracts. a) Suppose you are offered a long forward contract at a forward price of $ 1310. How much would you need to be paid to enter into this contract $ 144.1 ? b) Suppose you are offered a long forward contract at a forward price of $ 1035. How much would you need be willing to pay to enter into this contract $ 113.85 ?
Let's imagine that the OIS rates for one year and two years are 2% and 4% respectively. Now, let's examine an OIS swap set to mature in two years, where you receive a fixed rate of 3% and pay the floating reference rate. The principal amount involved is 1 million. If payments are made annually with annual compounding, what is the value of the swap? (a)−558.4 (b) −188.5 (c) 0 (d)188.5 (e) 558.4
Consider a 1-year semi-annually paid interest rate swap, the notional is £1,000,000, the swap rate is 3.0%, the floating rate is GM LIBOR + 1%. On the market, the 6M LIBOR spot and its 6-month maturity forward are 3.0% and 1.0%, respectively. Sketch the cash-flow diagram of the fixed-leg.
2. Assume a continuously compounding dollar interest rate of 5%. If you long a 1-year forward contract on a security with a delivery price K of $55, (a) the security to the future (except interest cost). What should be the current forward price F on the security with 1-year maturity? If the current spot price is $50, there is not other costs or benefits in carrying (b) position in the 1-year forward with a delivery price of $55? Based on your calculated forward price, what is the current value of your long
Consider a 12-month forward contract written on USDTRY. The current spot price is 8.2900 TRY per USD. 12 -month continuously compounded borrowing and lending risk free interest rates are 1.572% and 18.942% per annum for USD and TRY, respectively. What is the correct price of this forward contract at the inception? please answer fast i give upvote
Let’s say we have a situation where all 12-month LIBOR forward rates at 8% per annum with annual compounding. All cap volatilities are 16%. Estimate the difference between the way a sophisticated trader and an unsophisticated trader would value a LIBOR-in-arrears swap where payments are made annually and the life of the swap is 5 years and 10 years. Also, assume a notional principal of $1 million and no difference between the risk-free discount rate and LIBOR rates.
Suppose the three-year swap rate for a swap with annual payments is 3.2% and that OIS (risk-free) zero rates for maturities of one, two and three years are 2.5%, 2.7% and 2.9% respectively. What is the value of a three-year swap where 4% is received and TSOFR is paid on a principal of $100 million? All rates are annually compounded.
You are trying to buy an interest rate swap that will give you floating LIBOR interest for the next 3 years. The notional principal is $100,000 and the settlement is annual. If the annual LIBOR forward rates for the next three years are such that f0,1 = 3%, f1,2 = 3.5% and f2,3 = 4% (fx,y = forward rates between year x and y), determine the fixed rate of this interest rate swap. (Note: Fixed rate in an interest rate swap is a choice variable as in this case. You can buy an interest rate swap as a speculator without having any assets.)
Suppose the 1-year and 2-year OIS rates are 2% and 4%, respectively. Consider an OIS swap with two years to maturity where you receive 3% and pay the floating reference rate with principal 1 million. If the payments are made annually with annual compounding the value of the swap is (a)−558.4 (b)−188.5 (c) 0 (d) 188.5 (e) 558.4
Suppose that the 9-month and 12-month LIBOR rates are 4% and 4.2%, respectively. What is the value of an FRA where 5% is received and LIBOR is paid on £1 million for the quarterly period? All rates are quarterly compounded and expressed as per annum. Assume that LIBOR is used as the risk-free discount rate. Select one: a. £478.115 b. £422.870 c. £479.062 d. £426.132
To find the quoted price of a 180-day T - bill with a 5% yield and the contract price for a $ 1,000,000 90 - day notional Eurodollar contract, we need to do a couple of calculations.

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