An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at 2% is paid and 12-month LIBOR is received. A exchange of payments has just taken place. The one-year, two-year and three- year LIBOR/swap zero rates are 2%, 3% and 4%. All rates an annually compounded. What is the value of the swap as a percentage of the principal when LIBOR discounting * .is used

Q: (Motivation for Interest rate swap) National Bank has a $200b Adjustable Rate Mortgage (ARM) as a…

A: Interest rate on borrowed funds = 2.34%+Libor.Tenure = 3 years Funds are borrowed in USD.

Q: Insurance company, IHI, is part of a swap agreement with investment bank Lachlin Bank on a notional…

A: Notional amount=100 millionInterest rate=7% semi-annuallyResidual life=18 monthsInterest payment due…

Q: 2. A company can invest funds for five years at LIBOR minus 40 basis points. The five-year swap rate…

A: Swap Rate be the five-year swap rate (4.5%)Spread be the spread over LIBOR (in basis points)

Q: 2. Find an expression in terms of the nominal interest rate convertible quarterly for the…

A: Nominal interest rate=rCompounded quarterly=44 months annuity=$640Period=21 yearsTotal period=21 x…

Q: Alpha and Beta Companies can borrow for a five-year term at the following rates: Moody's credit…

A: Quality Spread differential(QSD) = Difference in fixed rate borrowing costs - Difference in floating…

Q: Consider a $10,000,000 1-year quarterly-pay swap with a fixed rate of 4.5% and a floating rate of…

A: Answer -   Calculation of Amount that will be realized to fixed rate payer in the swap -   The…

Q: (1) (a) An annuity immediate has semiannual payments of P 10,000 for 10 years at a rate of 6%…

A: Present value refers to the current value of the amount of money in the future affected by…

Q: Incredible Inc., a manufacturer of children’s toys, enters into a two-year plain vanilla interest…

A: The cash flows or obligations from two distinct financial instruments are exchanged between two…

Q: of the swap as a percentage of the principal when OIS and LIBOR rates are the same?

A: The worldwide banks that lend to one another in an international interbank market for short-term…

Q: Company AB Fixed (%) 6 7 Floating (%) LIBOR + 0.4 LIBOR + 0.6

A: A swap has to be designed so that A gets the full net benefit of swap. There are multiple ways to…

Q: Some time ago a swap dealer entered into a Forward Rate Agreement (FRA) that has a notional value of…

A: FRA: FRA (Forward rate agreements) represents the over-the-counter between some parties that define…

Q: Companies A and B are able to receive the following rates per annum on a $10 million, 5-year…

A: Swaps are one of the types of financial derivatives which are used to exchange one underlying asset…

Q: Tyson Inc. is entering into a 3-year pay-euros and receive-dollars cross currency swap. The 3-year…

A: Tyson will receive dollars at 2.28% and will pay 1.89% euros.

Q: a sample of Treasury strips. Each strip makes a single payment at maturity.   Years to Maturity…

A: Discount to price will give interest rate on that.

Q: Current USD Interest rates are 7% per annum and AUD rates are 9% per annum, flat for all terms.…

A: Foreign Exchange:Foreign exchange, also known as forex, is the process of buying and selling…

Q: You signed a 10-year interest swap (principal USD 1,000,000) with annual payments to pay LIBOR USD…

A: An interest rate swap is a financial contract between two parties that involves the exchange of…

Q: A financial institution has entered into a swap where it agreed to receive quarterly payments at a…

A: Swap typically refers to exchanging one thing for another. In the context of computing, specifically…

Q: A deposit of $460 earns interest rates of 8.6 percent in the first year and 10.6 percent in the…

A: Future value represents the value of the investment at the future date.

Q: nsurance company, IHI, is part of a swap agreement with investment bank Lachlin Bank on a notional…

A: In case of interest rate swap, one party pays fixed rate to the counter party and receives the…

Q: Consider a $15 million interest-rate swap in which cash flows based on a fixed rate of 5% (with…

A: A swap is a kind of contract in which two parties agree to exchange cash flows on the basis of two…

Q: A plain vanilla 2-year interest rate swap with annual payments has a notional principal of $1…

A: In an interest rate swap with annual payments, two months have elapsed. The swap needs to be valued…

Q: What is the continuously compounded zero rate for all maturities? O (a) 12.00% O b) 11.80% O0 11.71%…

A: The question is based on the concept of interest rate swap.  One stream of future interest payments…

Q: An interest rate swap with a notional of $100mln involves payment of 5% per annum fixed (paid…

A: Interest rate swap: It represents a contractual agreement between two parties wherein it involves…

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.