4. You have an outstanding fixed-for-fixed NOK/NZD swap for NOK 100m, based on a historic sport rate of NOK/NZD 4 and initial seven-year swap rates of 7% (NZD) and 8% (NOK). The swap now has three years to go, and the current rate at NOK/NZD 4.5, 6 percent (NZD three years) and 5 percent (NOK three years). What is the market value of the swap contract? Answer provided, what does the 'alpha' represent in the below solution??: Please provide answer in handwritten formula
4. You have an outstanding fixed-for-fixed NOK/NZD swap for NOK 100m, based on a historic sport rate of NOK/NZD 4 and initial seven-year swap rates of 7% (NZD) and 8% (NOK). The swap now has three years to go, and the current rate at NOK/NZD 4.5, 6 percent (NZD three years) and 5 percent (NOK three years). What is the market value of the swap contract? Answer provided, what does the 'alpha' represent in the below solution??: Please provide answer in handwritten formula
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
Related questions
Question
4. You have an outstanding fixed-for-fixed NOK/NZD swap for NOK 100m, based on a historic sport rate of NOK/NZD 4 and initial seven-year swap rates of 7% (NZD) and 8% (NOK). The swap now has three years to go, and the current rate at NOK/NZD 4.5, 6 percent (NZD three years) and 5 percent (NOK three years). What is the market value of the swap contract?
Answer provided, what does the 'alpha' represent in the below solution??:
Please provide answer in handwritten formula
![NZD leg: 25m x [1+ (0.07 -0.06 ) x a( 6%, 3)] = 25m x [1 + (0.01 x 2.666)] = 25m x 1.02666 =
NZD 25,666,500 converted into NOK using current NOK/NZD rate should be 25,666,500 x 4.5
= NOK 115,499,250
NOK leg: 100m x [1+ (0.08 -0.05) x a(5%, 3)] = 100m x [1 + (0.03 x 2.724)] = 100m x 0.91828 =
NOK 91,828,000
V=91,828,000-115,499,250 = -23,671,250 NOK](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd0a3c19f-0ecb-43ef-8f62-48070c8bcd56%2Fab24a438-f61d-455a-be72-1953ad8f7f1a%2Fw8twyw3_processed.png&w=3840&q=75)
Transcribed Image Text:NZD leg: 25m x [1+ (0.07 -0.06 ) x a( 6%, 3)] = 25m x [1 + (0.01 x 2.666)] = 25m x 1.02666 =
NZD 25,666,500 converted into NOK using current NOK/NZD rate should be 25,666,500 x 4.5
= NOK 115,499,250
NOK leg: 100m x [1+ (0.08 -0.05) x a(5%, 3)] = 100m x [1 + (0.03 x 2.724)] = 100m x 0.91828 =
NOK 91,828,000
V=91,828,000-115,499,250 = -23,671,250 NOK
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education