An interest rate swap has three years of remaining life. Payments are exchangedannually. Interest at 3% is paid and 12-month LIBOR is received. A exchange ofpayments has just taken place. The one-year, two-year and three-year LIBOR/swapzero rates are 2%, 3% and 4%. All rates an annually compounded. What is the valueof the swap as a percentage of the principal when OIS and LIBOR rates are thesame?0.002.662.061.06

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of the swap as a percentage of the principal when OIS and LIBOR rates are the same?

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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Question

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. 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 OIS and LIBOR rates are the
same?
0.00
2.66
2.06
1.06

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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. An exchange of payments has just taken place. The one-year, two-year and three-year LIBOR/swap zero rates are 2%, 3% and 5%. All rates are annually compounded. What is the value of the swap as a percentage of the $100 principal value?
An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at 4% 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 3%, 4% and 5%. All rates an annually compounded. What is the value of the swap if LIBOR discounting is used. O 2.58 O 5.47 2.06 O 1.06
A semi-annual pay interest rate swap where the fixed rate is 5.00% (with semi-annual compounding) has a remaining life of nine months. The six-month LIBOR rate observed three months ago was 4.85% with semi-annual compounding. Today’s three and nine month LIBOR rates are 5.3% and 5.8% (continuously compounded) respectively. From this it can be calculated that the forward LIBOR rate for the period between three- and nine-months is 6.14% with semi-annual compounding. If the swap has a principal value of $15,000,000, what is the value of the swap to the party receiving a fixed rate of interest? Assume OIS rates are the same as LIBOR rates.
A semi-annual pay interest rate swap where the fixed rate is 5.00% (with semi-annual compounding) has a remaining life of nine months. The six-month LIBOR rate observed three months ago was 4.85% with semi-annual compounding. Today’s three and nine month LIBOR rates are 5.3% and 5.8% (continuously compounded) respectively. From this it can be calculated that the forward LIBOR rate for the period between three- and nine-months is 6.14% with semi-annual compounding. If the swap has a principal value of $15,000,000, what is the value of the swap to the party receiving a fixed rate of interest? Assume OIS rates are the same as LIBOR rates. Please show how you get the floating payments
1. (15 marks) (a) Consider a two-year interest rate swap with semi-annual payments based on actual/360 day-count and a notional principal of $1 million. Assume that the current six-month LIBOR and the forward LIBORS for the next three periods are as follows: Current Forward No. of Days 6-Month 6-Month Period in Period LIBOR LIBOR 1 181 4.6% 2 184 5.0% 3 181 5.2% 4 184 5.6% (a) What is the swap rate for this swap? (9 marks) (b) After one year, the six-month LIBOR is 5.5% and the forward LIBOR for the next period is 6.0%. What is the value of this swap from the perspective of the floating-rate payer? (6 marks)
Continuously compounded LIBOR rates per annum for 6, 12, and 18-months are given in the table below. The 2-year swap rate is 3% per annum with payments made semiannually. What is the 2-year LIBOR/swap zero rate for 2 years? Use LIBOR discounting 0.5 - 2.0% 1.0 - 2.4% 1.5 - 2.6% 2.0 - ?
Netflix company has entered into a plain vanilla interest rate swap on $2,500,000 notional principal. The company pays fixed rate of 7.0% on payments that occur at 60-day intervals. Six payments remain with the next one due in exactly 60 days. On the other side of the swap, the company receives payments based on the LIBOR rate. Describe the transaction that occurs between the company and the dealer at the end of the first period if the appropriate LIBOR rate is 8.5%.
nsurance company, IHI, is part of a swap agreement with investment bank Lachlin Bank on a notional principal of $100 million. IHI has agreed to pay Lachlin Bank the six month BBSW rate and receives 7% pa, convertible half-yearly. If the swap has a residual life of 18 months, and the next interest payment is due in six months, calculate the value of the swap for Lachlin, given BBSW rates (compounding continuously) for the corresponding 6, 12 and 18 month maturities are 6.91% pa, 7.3% pa, 7.35% pa and the half year BBSW rate on the next payment is known to be 7% pa compounding half-yearly. Give your answer in millions of dollars to 2 decimal places. Value = $ ___________ million ANSWER IN TYPING OTHER WISE DOWNVOTE YOU
Styles c)A swap agreement calls for Grand Industries to pay interest annually based on a rate of 1% over the one year T bill rate, currently 6%. In return, Grand receives interest at a rate of 6% on a fixed rate basis. The notional principal for the swap is $ 500000| What is Grand's net interest for the year after the agreement?
Incredible Inc., a manufacturer of children’s toys, enters into a two-year plain vanilla interest rate swap, in which the corporation will receive a fixed rate and pay a floating rate of LIBOR. The notional amount on this swap is $75 million. Swap payments will be netted every 180 days, and the LIBOR requires the assumption of a 360-day year. The term structure of LIBOR on the swap initiation date is as follows: Days Rate (%) 180 3.50 360 3.55 540 3.60 720 3.70 a. What is the fixed rate determined on the swap initiation date? b. Calculate the swap value on the initiation date.
An investor who owns a interest rate swap pay six-month LIBOR and receive 18.1% (semi-annual compounding) on a principal of 95 million Euro. The remaining life of this swap is 15 months (1.25 years). The LIBOR rates for 3m, 9m and 15m are 19.1%, 19.6%, and 20.1% (continuous compounding), and the 6-month LIBOR on the last payment date (the most recent reset date) was 19.3% (semi-annual compounding). Calculate the value of the swap (in millions):
Six months ago, Thomas Group entered a one-year interest rate swap with its bank, paying fixed and receiving floating every quarter, according to the 3-month rate with nominal amount of $10 million. Following is the rates information when swap was entered, the rates information three months ago, and the rates information today. Note that all rates are annual and quarterly compounding. Keep at least 6 decimal points during your calculation. 3-month 6-month 9-month 12-month Six Months Ago 3.50% 3.80% 4.00% 4.00% Three Months Ago 3.80% 4.00% 4.50% 4.80% Now 4.80% 4.80% 5.00% 5.20% a. What are the amounts of money Thomas Group received or paid over past six months? b. What is the current market value of the interest rate swap Thomas Group is holding?

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