The LIBOR zero curve is flat at 5% per year with continuously compounded out to 1.5 years. The swap rate for 2-year semiannual pay swap is 5.4% per year with semiannual compounding. Estimate the 2-year LIBOR zero rate per year with continuous compounding. a. 5.00% b. 5.13% c. 5.20% d. 5.34% e. 5.40%
Q: You're prepared to make monthly payments of $310, beginning at the end of this month, into an…
A: The objective of this question is to find out the number of payments required to reach a certain…
Q: Esfandairi Enterprises is considering a new three-year expansion project that requires an initial…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: You expect a stock to pay dividends of $0.80, $1.20, $1.85, $2.00 over the next 4 years. You will…
A: The price of a stock is the sum of the present value of future dividends.
Q: Describe the different mechanisms available to a firm for repurchasing shares. There are three…
A: A stock buyback, also called a share repurchase, is a financial action where a company uses its own…
Q: A company has $2 million in net income, of which it pays $500,000 in dividends. At the beginning of…
A: Net Income = ni = $2 millionDividend = d = $500,000Equity = e = $10 million
Q: Lucky Brand company has some of its jeans manufactured under a contract with an independent clothing…
A: Present value factor is computed as follows:-Present value factor = wherer= interest raten=time…
Q: he company alfa & omega, s.a. You want to accumulate $1,000,000 in a sinking fund at the end of 7…
A: Sinking fund is the money required in the future and deposits are made to meet the required amount…
Q: Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying…
A: Production efficiency refers to the proper usage of the capacity and resources of the company to…
Q: Example: A new process for a manufacturing process will have a first cost of $55,000 with annual…
A: Payback period= First costs / Annual cash flowIt doesnt take into consideration time value of money
Q: Assume the spot Swiss franc is $0.7070 and the six-month forward rate is $0.7090. What is the Value…
A: Here, Spot Price $ 0.7070Strike Price $ 0.6870Risk Free…
Q: AMC Corporation currently has an enterprise value of $390 million and $115 million in excess cash…
A: Buying of shares from the open market by the company in bulk, in order to reduce the external…
Q: An individual investor is subject to a 30 percent tax on dividends and 20 percent tax on capital…
A: Investors pay tax on both capital gains and dividends. First the dividend tax paid when dividends…
Q: Security A B C Beta 0.8 1.0 1.2 Expected Return 10% 12% 14% Residual standard deviation 25% 10% 20%…
A: According to Single Index model , Variance of stock is calculated as follows:-Variance of stock =…
Q: Which one of the following should be assumed about a project that requires a $100,000 investment at…
A: The cost of the project = $100000Revenue/benefits to be received from the project= $20000*5= $100000
Q: Staton-Smith Software is a new start-up company and will not pay dividends for the first five years…
A: The Dividend Growth Model is a way of valuing the stock price.Here, the stock price is determined by…
Q: Yellow Day has a project with the following cash flows: Year Cash Flows 0 -$ 26,700 1 10,400 2…
A: Future value can be calculated usingFV = PV* (1 + r / n)ntWhere,PV = Present valueFV = Future valuer…
Q: United Pigpen (UP) is considering a proposal to manufacture high protein hog feed. The project would…
A: Net Present Value is used to evaluate the investment and financing decisions that involve cash flows…
Q: There is a zero coupon bond that sells for $500 and has a par value of $1,000. If the bond has 20…
A: In zero coupon bonds there is no coupon and par value is paid on the maturity and discount is profit…
Q: oe just graduated from college and has found a nice job. As a graduation gift his father gave him…
A: Future value can be calculated usingFV (rate, nper, pmt, [Pv], [type])Rate The interest rateNper…
Q: You are considering two investment alternatives. The first is a stock that pays quarterly dividends…
A: HPR= (Income+Value at end of holding period-Value at the start of holding period)/Value at the start…
Q: Problem #4 Apply goal seek to calculate the number of units needed to achieve a total net revenue.…
A: Total Net Revenue = (Retail Price * Number of units)*(1-Selling discount %)
Q: Noma plans to save $4,100 per year for the next 40 years. If she can earn an annual interest rate of…
A: Future value of the money is the amount of deposit done and amount of compounded interest…
Q: You have credit card debt of $30,000 that has an APR (monthly compounding) of 18%. Each month you…
A: Monthly Interest rate of old card=18%/12=1.5%Interest payment of old card per month=$30000*1.5%=…
Q: ransactions involving buying and selling securities are conducted through stockbrokers, who are also…
A: Full-service brokers are financial intermediaries who provide a wide range of services to their…
Q: Grayson purchased his primary residence for $260,000. As part of the closing procedure, he paid…
A: Variables in the question:Cost of purchase =$260,000Loan origination fees=$2,900 Lawyer's…
Q: Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these…
A: Net sales = $288,000- (288,000*10%) = $259,200The production and marketing costs represent 70% of…
Q: A new oven will save $90 per year in electricity expense. How much can we afford to pay for this…
A: An annuity is a type of investment contract or financial instrument that gives the receiver, or…
Q: he price of an American call on a non-dividend paying stock is $2. The stock price is $15.50, the…
A: Put option gives the opportunity to sell the stock on given strike price but there is no obligation…
Q: 30. ABC Inc.'s bonds currently sell for $1,180 and have a par value of $1,000. They pay a $105…
A: YTM is also known as Yield to maturity. It is a capital budgeting technique which helps in decision…
Q: 10 You are trying to determine which of two none mutually exclusive projects to undertake. Project…
A: NPV means Net present value.It is a capital budgeting technique used for making investment…
Q: Marie wants to provide retirement income for her dependent parents for 35 years should she die.…
A: Insurance refers to a contract made between the insurance company and the insurer in respect of…
Q: Sparkling Water, Incorporated, expects to sell 3.7 million bottles of drinking water each year in…
A: Here,ParticularsValuesNumber of bottles sold3700000.00Selling price per bottle $ 1.46Cost price per…
Q: Sam's Auto Shop Inc. issued a semiannual coupon bond, with a coupon rate of 6.0% The bond has a…
A: The market price of the bond is the present value of cash flow from the bond based on time value of…
Q: Carnes Cosmetics Co.'s stock price is $37, and it recently paid a $1.50 dividend. This dividend is…
A: Price of stock is the present value of future dividends and value received in the future discounted…
Q: A put option and a call option with an exercise price of $55 and three months to expiration sell for…
A: According to Put call parity theory there is certain relationship between Put,Call and stock price…
Q: The increase in saving account deposits would Select one: a. increase M1. b. have no effect on M2.…
A: In this question, we are required to determine the impact of increase in saving account deposits.
Q: Fun Land is considering adding a miniature golf course to its facility. The course would cost…
A: Net present value(NPV) is the difference between present value of all cash inflows and initial…
Q: Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to…
A: In retirement planning, planning should be done based on the future requirements based on the time…
Q: Your company currently has 5.25% coupon-rate bonds (coupons are paid semi-annually) with ten years…
A: Yield to maturity is the rate of return that the bondholders will get if invest and bond and hold…
Q: ou estimate that you can save $3,900 by selling your home yourself rather than using a real estate…
A: In this question, we are required to determine the future value.
Q: Find the amount applied to principle for the third month of a 4-year loan of $12,200 which charges 3…
A: A loan refers to a contract between two parties where a sum is forwarded by one party to the other…
Q: Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two…
A: Gain From Merger= administrative costs / Cost of capitalCost of the Cash Offered= Amount willing to…
Q: 2. [Straddle]Suppose AAPL current price is $200. You purchase 10 calls with strike price equal to…
A: Straddle is option strategy in which there is buying of call and put of same strike price with same…
Q: ou have just signed for a car loan with 48 monthly payments of $500 (principal and interest) at an…
A: First we need to use loan amortization formula below to calculate loan amount.wherePV = loan…
Q: If closing costs of $2,800 are associated with the refinance of a mortgage that would reduce the…
A: Time period required to recover the cost of refinancing= Cost of Refinancing / Reduction in monthly…
Q: 14% 12% 10% 8% 6% 4% 2% 0% घ 2018 Source: Aurthor's Work 2019 ROCE 2020 SAINSBURY Matilda PZ CUSSONS…
A: Return on capital employed (ROCE) is a financial ratio that measures the profitability and…
Q: A financier has made a loan of $13 million. The contract for the loan calls for payment of interest…
A: Future value refers to the value of the present asset at some future date affected by inflation,…
Q: Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call has a…
A: Here,Strike Price is $96Spot Price is $123.65Risk Free Rate is 6.42%Time Period is 92 daysNo. of…
Q: (Profitability analysis) Last year Triangular Resources earned $4.5 million in net operating income…
A: Investment in total assets can be calculated by using the following ratiosOperating profit margin =…
Q: A lender providing a loan of $2 million requires semi-annual payment of interest at a nominal rate…
A: Semi-annual payment refers to an amount that is paid every six months for the repayment of a loan…
Problem 4. The LIBOR zero curve is flat at 5% per year with continuously compounded out to 1.5 years. The swap rate for 2-year semiannual pay swap is 5.4% per year with semiannual compounding. Estimate the 2-year LIBOR zero rate per year with continuous compounding.
a. 5.00%
b. 5.13%
c. 5.20%
d. 5.34%
e. 5.40%
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- Use the following table of spot rates: Years to Maturity Annual Effective Spot Rate 3.00% 2 3.60% 3. 3.85% 4 4.05% 5. 4.20% For a 2-year-deferred, 3-year interest rate swap with the level notional amount is I million and 1-year spot rate at time 3 is 3%, what is the amount of the net settlement payment at time 4? Is this amount paid by the payer, or by the receiver? O a. 15,950 paid by the receiver Ob. 16,950 pay by the receiver O. 15,950 paid by the payer Od. 16,950 paid by the payer O e. None of the aboveGive typing answer with explanation and conclusion You entered into a plain vanilla swap a while back where you pay 10% per annum with quarterly compounding on a notional principal of $100,000,000 with payments made quarterly. In exchange, you receive a payment of LIBOR. Your swap has 0.7 years left until its termination date. The LIBOR rate was 14.5% per annum with quarterly compounding when you made your last payment. If today’s discount rates are per annum with continuous compounding as followed what is the value of your position? Years Rate 0.2 7.25% 0.45 7.30% 0.7 7.35%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 - ?
- Question 1. The continuous one-year, two-year, and three-year zero rates are 1.25%, 1.5%, 1.75% respectively. (a) Compute the two-year forward one-year libor rate. This is the forward libor rate for the period starting 2 years from now and ending 1 year after that. (Remember libor is a simple interest rate, it is not a compounded rate.) (b) Suppose the two-year forward two-year libor rate is 3%. What is the continuous four-year zero rate?Finance Assuming we have the following immediate interest rates in the market: 1M - 2.5%, 2M - 2.8%, 3M - 3%, calculate the FRA 1v2 rate. Assume that each month has 30 days and a year has 360 days. If the investor has purchased this contract at the FRA rate calculated above and the interest rate in the market at the time the contract is settled is 3.2%, then in which direction the settlement flows (between the buyer and seller of the contract)? (please use the formula to solve it, thank you)5. Suppose you have a 2.5-year remaining on an interest rate swap with a notional principal of $10,000, 000 between Company A and Company B. Company A pays fixed rate and Company B pays the float rate. Fixed and float payments are exchanged every year and the last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and the floating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago, is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is 3.50%. Calculate the present value of the fixed and floating legs of the swap, and determine the swap's net present value from Company A's perspective. Assume annual compounding for discounting.
- Consider a one-year interest rate swap with semi-annual payments, based on 30/360 day count convention. The term structure of LIBOR spot rates is given as follows: 6-month LIBOR at 7.2%, and 12-month LIBOR at 8.0%. What is the annualized fixed rate on the swap? A. 7.42%. B. 7.93% C. 7.84%. D. 7.56%.Define the stated (quoted) or nominal rate INOM as well as the periodic rate IPER. Will the future value be larger or smaller if we compound an initial amount more often than annually—for example, every 6 months, or semiannually—holding the stated interest rate constant? Why? What is the future value of $100 after 5 years under 12% annual compounding? Semiannual compounding? Quarterly compounding? Monthly compounding? Daily compounding? What is the effective annual rate (EAR or EFF%)? What is the EFF% for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?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
- 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 ?10. If P 11 200 is the present value of P 13 700 due at the end of 16 months, find a. discount interest rate Answer: b. simple interest rate Answer:4. Within the framework of the Ho-Lee model, you have estimated the following continuously-compounded interest rate tree, with the time interval between two movements being A = 1 year: t: 1 2 4% 3% 2% 2% 1% 0.5% Price a cap with a notional of $100 and an annually-compounded strike rate of 1%. The first cash flow of the cap is paid at t=1, and its last cash flow is paid at t=3. The cap pays its cash flows annually.