Suppose that some time ago a financial institution entered into a swap where it agreed to make semiannual payments at a rate of 3.5% per annum and receive LIBOR on a notional principal of $300 million. The swap now has a remaining life of 1.15 years. Payments will therefore be made 0.15, 0.65, and 1.15 years from today. The risk-free rates with continuous compounding for maturities of 0.15, 0.65, and 1.15 years are 2.8%, 3.2%, and 3.4%, respectively. We suppose that the forward LIBOR rates for the 0.15-to- 0.65 year and the O.65-to-1.15 year periods are 3.4% and 3.7%, respectively, with semiannual compounding. The LIBOR rate applicable to the exchange in 0.15 years was determined 0.35 years ago. Suppose it is 2.9% with semiannual compounding. What is the floating cash flow at time 1.15 (in S millions)?

Suppose that some time ago a financial institution entered into a swap where it agreed to make semiannual payments at a rate of 3.5% per annum and receive LIBOR on a notional principal of $300 million. The swap now has a remaining life of 1.15 years. Payments will therefore be made 0.15, 0.65, and 1.15 years from today. The risk-free rates with continuous compounding for maturities of 0.15, 0.65, and 1.15 years are 2.8%, 3.2%, and 3.4%, respectively. We suppose that the forward LIBOR rates for the 0.15-to- 0.65 year and the O.65-to-1.15 year periods are 3.4% and 3.7%, respectively, with semiannual compounding. The LIBOR rate applicable to the exchange in 0.15 years was determined 0.35 years ago. Suppose it is 2.9% with semiannual compounding. What is the floating cash flow at time 1.15 (in S millions)?

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 we are pricing a five-year Libor-based interest rate swap with annual resets (30/360 day count). The estimated present value factors are given below: Maturity(years) Present ValueFactors1 0.9900992 0.9778763 0.9651364 0.9515295 0.937467 What is the fixed rate of the swap? Answer in 4 decimal places
A Credit Default Swap is structured like the one below for a protection of $100 million. If payments are made annually, what are the cash flows from A to B if there is a default after 2 years and 2 months and recovery rate is 40%? And what are the cash flows from B to A? 70 bps per year Default Default Protection Protection Buyer, A Seller, B Payoff if there is a default by reference entity=100(1-R)
Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 11% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 11%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $95 million. (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)
Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 7% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 7%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $10 million.
A2) A semi-annual pay interest rate swap where the fixed rate is 6.00% (with semi-annual compounding) has a remaining life of eight months. The six-month LIBOR rate observed four months ago was 5.00% with semi-annual compounding. Today’s two and eight month LIBOR rates are 5.5% and 5.75% (continuously compounded) respectively. Assume that OIS and LIBOR rates are the same. If the swap has a principal value of $100,000, the value of the swap to the party receiving a fixed rate of interest is closest to which of the following ?
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.
Your firm has semi-annual floating rate payment obligations for the next two years computed on a nominal value of $10M. You observe the following LIBOR spot rates: 6 months = 1.5%, 12 months = 2%, 18 months =2.2%, 24 months=2.5%. Find the swap fixed rate. How would you use the swap in order to hedge your position (floating rate payment obligations)?
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
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 at the present time, one can enter 5-year swaps that exchange SOFR for 4%. An off-market swap would then be defined as a swap of SOFR for a fixed rate other than 4%. For example, a firm with 8% coupon debt outstanding might like to convert to synthetic floating- rate debt by entering a swap in which it pays SOFR and receives a fixed rate of 8%. What up- front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $110 million. Note: Do not round intermediate calculations. Round your final answer to the nearest dollar amount. X Answer is complete but not entirely correct. Up-front payment 2,174,000 X $
For an interest rate swap, if i have 7-year floating rate of 4% and a 7 year fixed rate of 5.4% and both loans are valued at 12 million. How do I find the value of the swap? NPV or PV.
Explain in detail how a five year plain vanilla interest rate swap with a notional value of $1,000,000 and a price of 3% can be used: (Illustrate with diagrams) i) To speculate on changes in interest rates; ii) To s hedge against the risk of an increase in interest rates.

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