8.1 The term structure for (annual effective) interest rates is as follows for corresponding maturities: 1 year: 5%, 2 year: 10%, 3 year: 15%, 4 year: 20% (a) Find the swap rate for a 4-year interest rate swap of floating rate interest for fixed rate interest if the notional amount is level for the four year swap tenor.
8.1 The term structure for (annual effective) interest rates is as follows for corresponding maturities: 1 year: 5%, 2 year: 10%, 3 year: 15%, 4 year: 20% (a) Find the swap rate for a 4-year interest rate swap of floating rate interest for fixed rate interest if the notional amount is level for the four year swap tenor.
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
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PLease use actuarial science work to solve this question. The answer is (a) 0.1774, (b) 0.2124, (c) 0.3020
Thank you so much.
Transcribed Image Text:The term structure for (annual effective) interest rates is as
follows for corresponding maturities:
1 year: 5%, 2 year: 10%, 3 year: 15%, 4 year: 20%
(a) Find the swap rate for a 4-year interest rate swap of floating
rate interest for fixed rate interest if the notional amount is
level for the four year swap tenor.
8.1
(b) Suppose that the notional amount is $1,000,000 for the first
two years and $2,000,000 for the third and fourth years. Find
the swap rate.
To de 0
(c) A two-year deferred swap with a tenor of two years is
arranged at the beginning of the first year. If the notional
anin amount is level for the swap, determine the swap rate.
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