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.

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.

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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A corporation enters into a five-year interest rate swap with a swap bank in which it agrees to pay the swap bank a fixed rate of 10.60 percent annually on a notional amount of €15,000,000 and receive six-month CME Term SOFR + 0.5 percent. As of the second reset date, determine the price of the swap from the corporation's viewpoint assuming that the fixed rate side of the swap has increased to 11.10 percent.
A 3/1 ARM is made for $250,000 at 7 percent with a 30-year maturity. Fixed payments are to be made monthly for three years, after which the interest rate will reset. Refer to the original question (1, 2), assuming the INTEREST RATE CAP of 2%, what would new payments be beginning in year 4 if the interest rate instead rose to 10%? Hint: the capped rate does not allow the new rate to go above certain point. (question one was If the loan is fully amortizing, what will be the monthly payments? 1663.26; and question two was What will be the loan balance after three years? 241,817.41) Please asnwer as excell format using rate, NPER. PV, FV, and PMT
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A $30,000,000 interest rate swap has a 12-month maturity, and was entered 2 months ago. This means the swap has a remaining life of 10 months. The swap pays interest quarterly, and it stipulates that the fixed rate is 4.5%, while the floating rate is the 3-month LIBOR +1%. Two months ago, when the swap was entered, 3-month LIBOR was 2.9%. The 3-month LIBOR forward rates and continuous time zero-coupon prices are given in a table below. Use the zero coupon prices to discount cash-flows. 3-month LIBOR Forward Rates Term rate 1x4 2.90% 2x5 2.85% 3x6 2.84% 4x7 2.88% 5x8 2.90% 6x9 2.91% 7x10 2.92% 8x11 2.92% 9x12 2.92% Zero-Coupon prices T (month) Price 1 0.9976 2 0.9953 3 0.9929 4 0.9904 5 0.988 6 0.9856 7 0.9831 8 0.9807 9 0.9783 10 0.9761 11 0.9737 12 0.9712 (Important hint: since the swap was entered 2 months ago, and makes quarterly payments, in the remaining 10 months, payments should be expected in 1 month, 4 months, 7 months and 10 months. Discount cash flows accordingly.)…
5. Suppose you have a 2.5-year remaining on an interest rate swap with a notional principal of $10,000, 000 between Company A and Company B. Company A pays fixed rate and Company B pays the float rate. Fixed and float payments are exchanged every year and the last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and the floating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago, is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is 3.50%. Calculate the present value of the fixed and floating legs of the swap, and determine the swap's net present value from Company A's perspective. Assume annual compounding for discounting.
Netflix company has entered into a plain vanilla interest rate swap on $2,500,000 notional principal. The company pays fixed rate of 7.0% on payments that occur at 60-day intervals. Six payments remain with the next one due in exactly 60 days. On the other side of the swap, the company receives payments based on the LIBOR rate. Describe the transaction that occurs between the company and the dealer at the end of the first period if the appropriate LIBOR rate is 8.5%.
An investor holds the fixed-payer position in a 7.44%/LIBOR swap with $1M notional principal, semi-annual payments, and exactly one-year remaining. What is the value of the existing fixed-payer position, if the swap rate for new one-year swaps with matching notional principal is 3.57%/LIBOR
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?
Consider a 5-year $100 fixed notional equity-for-Libor swap, where the stock price at inception was $35. The swap is based on semi-annual payments on both legs, with an Actual/360 convention for the Libor leg. Two years after inception, on the fourth reset date, the stock price is $40. Assume that the number of days in the next period is 183, and the six-month Libor rate on this reset date is 10%. What is the value of the swap from the point of view of the receiver of equity return Zero +14.29 +4.29 O-14.29

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