2. Assume that you are a swap dealer and have just acted as a counterparty in an interest rate swap. The notional principal for the swap was $8 million and you are now obligated to make 6 annual payments of 4% interest. The floating rate that you will receive annually is LIBOR + 1%. The LIBOR is expected to be 2.6% for year 1, 2.8% for year 2, and 3.5% thereafter. Compute the net present value of your swap agreement at a discount rate of 6%?

2. Assume that you are a swap dealer and have just acted as a counterparty in an interest rate swap. The notional principal for the swap was $8 million and you are now obligated to make 6 annual payments of 4% interest. The floating rate that you will receive annually is LIBOR + 1%. The LIBOR is expected to be 2.6% for year 1, 2.8% for year 2, and 3.5% thereafter. Compute the net present value of your swap agreement at a discount rate of 6%?

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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You signed a 10-year interest swap (principal USD 1,000,000) with annual payments to pay LIBOR USD and receive fixed CHF. The quote is CHF 6%- 6.1% The spot rate at the time of the was CHF 0.9/ USD. Two years later you want to unwind the swap. The USD interest rate is 4% and the CHF interest rate is also 4%. What is the value of the swap in USD if the spot rate is 0.9? (round to the nearest $)
A financial institution has entered into a swap where it agreed to receive quarterly payments at a rate of 4% per annum and pay the SOFR three - month reference rate on a notional principal of $100 million. The swap now has a remaining life of 12 months. Assume the risk - free rates with continuous compounding (calculated from SOFR) for 2 month, 5 months, 8 months, and 11 months are 1.7%, 2.5%, 3.6%, and 3.8%, respectively. Assume also that the continuously compounded risk - free rate observed for the last two months is 2.5%. Estimate the value of the swap.
Design a swap. see image attached.
You are thinking about entering into a 3 year plain vanilla swap with annual payments and a notional principal of $5,000,000. If you plan to pay the fixed rate on the swap what would you expect to pay if annual interest rates are listed below per annum with continuous compounding? Year Rate 1 3.00% 2 3.50% 3 4.50% A) $53,221.46 B) $150,000.00 C) $183,333.33 D) $227,411.44 E) $372,407.89 The answer is D. Show all work to reach D, no Excel.
a. Calculate the intrinsic value for each of the following call options. (Round your answers to 2 decimal places.) Company RJay RJay Sell-Mart Xenon Time to Expiration (months) RJay RJay Sell-Mart Xenon 1 2 Time to Company Expiration (months) 5 6 LO Strike 1 2 5 6 60 70 60 7.50 b. Now assume that the effective annual interest rate is 7.18%, which corresponds to a monthly interest rate of 0.58%. Calculate the present value of each call option's exercise price and the adjusted intrinsic value for each call option. (Round your answers to 2 decimal places.) Strike SO 60 70 60 7.50 62.77 62.57 67.80 6.48 Intrinsic Value SO 62.77 62.57 67.80 6.48 PV(X) Adjusted Intrinsic Value
(b) Calculate the effective interest rate paid by Vri.com and Yadine in the following swap. Vri.com: Borrower rated AA that can borrow for three years at either 5% fixed or LIBOR plus 50 basis points. Borrower rate BBB that can borrow for three years at either 8% fixed or Yadine: LIBOR plus 150 basis points. 5%+1% Vri.com Yadine LIBOR +50 5% fixed LIBOR +
Vijay
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.)
Some time ago a swap dealer entered into a Forward Rate Agreement (FRA) that has a notional value of $25,000,000. The swap dealer agreed to pay 4.96% based on quarterly compounding and receive Libor. Libor zero rates (based on continuous compounding are given below. a. What is the value of the FRA to the swap dealer assuming it begins in 9 months and lasts for 3 months? + b. Provide an example which shows exactly how the swap dealer can hedge its position in the FRA. Maturity (months) Zero Rate (%) 4 6 4.54 5 5.5 12 15
An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at 5% 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 4%, 5% and 6%. All rates are annually compounded. What is the value of the swap as a percentage of the principal ($100) when OIS and LIBOR rates are the same? (
56. subject:- accounting
You signed a 15-year interest swap with annual payments to pay fixed and receive floating. The quote was 4.5-4.7% against LIBOR flat. The principal is 100,000. What is the value of the swap 5 years later if the 15-Y LIBOR is 2% and the 10-Y LIBOR is 3%? (please use a fixed rate to discount the cash flows.) Round to the nearest US cent (2 decimal places).

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