1.(15 marks)(a)Consider a two-year interest rate swap with semi-annual payments based on actual/360 day-countand a notional principal of $1 million. Assume that the current six-month LIBOR and theforward LIBORS for the next three periods are as follows:CurrentForwardNo. of Days 6-Month6-MonthPeriodin PeriodLIBORLIBOR11814.6%21845.0%31815.2%41845.6%(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)

(a) Swap Rate Calculation:1. Calculate Fixed-rate Payments:Fixed-rate payment for period…

Answered: 1. (15 marks) (a) Consider a two-year…

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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Calculate the present value (principal) and the compound interest (in $). Use Table 11-2. Round your answers to the nearest cent. CompoundAmount Term ofInvestment NominalRate (%) InterestCompounded PresentValue CompoundInterest $28,500 18 months 4 semiannually $ $
Suppose the annualized LIBOR3 is 3.51% and the annualized LIBOR6 is 4.84%. What is the forward forward rate for a LIBOR3 (annualized) deposit to be placed in three months? a. 8.520% b. 4.175% c. 8.350% d. 6.116% e. None of the options in this question are correct.
1. Use MV = P(1 + RT) to find the maturity value (in $) of the loan. (Round your answer to two decimal places.) Principal Rate (%) Time Maturity Value $5,600 7.4 14 months 2Calculate the present value (principal) and the compound interest (in $). Use Table 11-2. Round your answers to the nearest cent. CompoundAmount Term ofInvestment NominalRate (%) InterestCompounded PresentValue CompoundInterest $6,000 12 years 6 semiannually $ $
V5. Suppose that some time ago a financial institution agreed to receive 6-month LIBOR and pay 4% per annum (with semi-annual compounding) on a notional principal of $200 million. The swap has a remaining life of 1.25 years; assume that the payments are to be exchanged every 6 months. The LIBOR rates with continuous compounding for 3-month, 9-month, and 15-month maturities are 3.8%, 4.2%, and 4.4%, respectively. The 6-month LIBOR rate at the last payment date was 3.9% (with semiannual compounding). Suppose that the day count convention is ignored. Calculate the current value of the swap (in terms of bond prices) to the financial institution.
3. 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?
2. Find the present value of $500 due in the future under each of these conditions: a. 12% nominal rate, semiannual compounding, discounted back 5 years b. 12% nominal rate, quarterly compounding, discounted back 5 years c. 12% nominal rate, monthly compounding, discounted back 1 year Hint: identify the interest rate per period and the total number of periods in each scenario first. O
Given i(26) = 6.375 %, find the equivalent nominal interest rate compounded monthly. Question 2Answer a. 6.512% b. 6.448% C. 6.639% d. 6.767% e. 6.384%
(a) A loan of £36,000 is to be repaid with 12 equal quarterly instalments. The nom- inal rate of interest per annum convertible 12-thly is 4%. Find the amount of each quarterly repayment, assuming that payments are made (i) at the end of each quarter, (ii) at the beginning of each quarter.
6. Consider a credit default swap initiated on April 1, 2012. The notional principal amount is $100 million. The premium payments are made annually at a rate of 180 basis points per year. The swap will last for 5 years. Suppose that default event occurs on December 31, 2014. The recovery rate is 65%. Then the accrual payment is equal to ___________. a. $0b. $1,200,000c. $1,350,000d. $4,400,000e. $35,000,000
A certain nominal annual interest rate has an effective rate of 19.722% when compounded continuously. What is its effective rate if compounded bi-monthly? A. 19.87% B. 18.45% C 18% D. 19.41%
If the spot CAD/USD rate is 1.1239 and the three month interest rates on CAD and USD are 0.75% and 0.4% annually respectively, then calculate the 3-month CAD/USD forward rate.
E6.1 (LO 1) (Using Interest Tables) For each of the following cases, indicate (a) to what rate col- umns, and (b) to what number of periods you would refer in looking up the interest factor. 1. In a future value of 1 table: Annual Number of Rate Years Invested Compounded a. 9% 9. Annually Quarterly Semiannually b. 12% c. 10% 15 2. In a present value of an annuity of 1 table: Annual Number of Number of Frequency of Rate Years Involved Rents Involved Rents abgini Annually Semiannually a. 9% 25 25 b. 10% 15 30 с. 12% 28 Quarterly

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