Suppose that a bank has agreed to the following terms of an interest rate swap: - The notional principal is CAD 300 million and the remaining life of the swap is 11 months. - The bank pays 8% per annum, and receives three-month LIBOR. - Payments are exchanged every three months. - The swap (fixed) rate is 11% per annum for all maturities. - The three-month LIBOR rate a month ago was 12.5% per annum. All rates are compounded quarterly. Estimate the value of the swap using a) a bond-price valuation method, and b) a FRAs-based method?
Suppose that a bank has agreed to the following terms of an interest rate swap: - The notional principal is CAD 300 million and the remaining life of the swap is 11 months. - The bank pays 8% per annum, and receives three-month LIBOR. - Payments are exchanged every three months. - The swap (fixed) rate is 11% per annum for all maturities. - The three-month LIBOR rate a month ago was 12.5% per annum. All rates are compounded quarterly. Estimate the value of the swap using a) a bond-price valuation method, and b) a FRAs-based method?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 9P
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Suppose that a bank has agreed to the following terms of an interest rate swap:
- The notional principal is CAD 300 million and the remaining life of the swap is 11 months.
- The bank pays 8% per annum, and receives three-month LIBOR.
- Payments are exchanged every three months.
- The swap (fixed) rate is 11% per annum for all maturities.
- The three-month LIBOR rate a month ago was 12.5% per annum. All rates are compounded quarterly.
Estimate the value of the swap using a) a
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