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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The answer is given, I want to receive the work on how to get the correct answer.
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Correct Answer
(Motivation for Interest rate swap) National Bank has a $200b Adjustable Rate Mortgage
(ARM) as a liability on its balance sheet. The interest rate on the ARM is 1.55%+Libor. As a
result, the bank will have to pay floating interest. The bank is considering hedging the risk in
the interest payment to the ARM with a three-year interest rate swap. What will be the Bank's
net interest rate of payment if it chooses the right swap?
Answer:
%.
2
♡
Euro-€
Years Bid Ask Bid Ask Bid Ask
7.72
Swiss franc
3.08 3.12 1.68
3.47
U. S. dollar
Japanese yen
Bid
1.76 5.43 5.46 0.45
3.25 3.29 2.41 2.68 5.64 6.17 0.56
Ask
0.49
0.59"
Transcribed Image Text:You Answered
Correct Answer
(Motivation for Interest rate swap) National Bank has a $200b Adjustable Rate Mortgage
(ARM) as a liability on its balance sheet. The interest rate on the ARM is 1.55%+Libor. As a
result, the bank will have to pay floating interest. The bank is considering hedging the risk in
the interest payment to the ARM with a three-year interest rate swap. What will be the Bank's
net interest rate of payment if it chooses the right swap?
Answer:
%.
2
♡
Euro-€
Years Bid Ask Bid Ask Bid Ask
7.72
Swiss franc
3.08 3.12 1.68
3.47
U. S. dollar
Japanese yen
Bid
1.76 5.43 5.46 0.45
3.25 3.29 2.41 2.68 5.64 6.17 0.56
Ask
0.49
0.59
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