A 1-year-deferred, 2-year interest rate swap is based on the spot rates in the following table: k Term (in years) Spot rate 1 0.03 2 0.04 3 X 4 0.05 It is an amortizing swap, with notional amounts of 2 million and 1 million during its two settlement periods (years 2 and 3). The swap rate is R=0.05267. Find the 3-year spot rate x.

A 1-year-deferred, 2-year interest rate swap is based on the spot rates in the following table: k Term (in years) Spot rate 1 0.03 2 0.04 3 X 4 0.05 It is an amortizing swap, with notional amounts of 2 million and 1 million during its two settlement periods (years 2 and 3). The swap rate is R=0.05267. Find the 3-year spot rate x.

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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Concept explainers

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.

Question

-A1-year-deferred, 2-year interest rate swap is based on the spot rates in the
following table:
4
Term (in years)
Spot rate
A) 0.043 (5
1
0.03
B) 0.044
2
0.04
It is an amortizing swap, with notional amounts of 2 million and 1 million during
its two settlement periods (years 2 and 3). The swap rate is R=0.05267.
Find the 3-year spot rate x.
3
X
C) 0.045 D) 0.046 E) 0.047
4
0.05

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H3. A 2-year swap based on LIBOR is entered into on 30/6/2010 with current spot 3 month LIBOR at 0.54%. The swap is based on a notional principal of $100m What is the swap rate? Please show proper step by step calculation
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A 2-year swap based on LIBOR is entered into on 30/6/2010 with current spot 3 month LIBOR at 0.54%. The swap is based on a notional principal of $100m What is the swap rate?
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The table below shows the spot rates for the given lengths of time. Numbers of years Effective Annual 2 3 4 6. 4% 4.7% 5,3% 6% 6.2% 7% Spot Calculate the swap rate for a three-year deferred, six-year Interest rate swap with settlement at the end of the year. O A. 6.43% O B. 7.25% OC 8.65%. O D. 9.05% O E. 10.2%
Styles c)A swap agreement calls for Grand Industries to pay interest annually based on a rate of 1% over the one year T bill rate, currently 6%. In return, Grand receives interest at a rate of 6% on a fixed rate basis. The notional principal for the swap is $ 500000| What is Grand's net interest for the year after the agreement?
Suppose that a commodity’s respective forward prices for 1 year and 2 years are $150 and $158. The 1-year effective annual interest rate is 5.9%, and the 2-year interest rate is 6.6%. You will pay a fixed rate of $153.85906 in a 2-year swap and receive the floating rate. At the time you enter the swap contract, its value to you is... A.$0.0084 B.$–0.0084 C.$0.0051 D.. $–0.0051 E.$000000
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 above
2. You are given the following table of spot rates: Year Spot rates 1 3.5% 3.8% 3 4.6% 4 5.1% Ant and Deck entered into a three-year interest rate swap with a notional amount of $500,000. The swap has annual settlement periods. Under the swap, Ant will pay Deck the variable interest and Deck will pay Ant the fixed interest rate at the end of each year. The variable rate is the 1- year spot rate at the beginning of each year. Determine the net swap payment at the end of the 3rd year.
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