Assume that Caterpillar’s return on investments is 2.50% per annum for the next four years. Next, suppose that Caterpillar and UBS (a financial institution) enter the following four year interest rate swap: Catepillar pays X% per annum fixed to UBS and receives LIBOR from UBS. All payments are made annually. Catepillar’s net return after it enters the swap is (LIBOR + 0.75%) per annum. In this case, Catepillar transforms ___________ into __________ and X equals to ________. a. Floating Rate Investment; Fixed Rate Investment; 1.75% b. Fixed Rate Investment; Floating Rate Investment; 3.25% c. Floating Rate Liability; Fixed Rate Liability; 3.25% d. Fixed Rate Investment; Floating Rate Investment; 3.50% e. Fixed Rate Investment; Floating Rate Investment; 1.75%

Q: An investor holds the fixed-payer position in a 7.69%/LIBOR swap with $7M notional principal,…

A: Fixed rate payer is also known as the payer swap.

Q: c) A swap agreement calls for Grand Industries to pay interest annually based on a rate of 1% over…

A: An interest rate swap can be defined as a derivative contract in which one party agrees with the…

Q: You purchased an interest rate swap of which notional principal is $100,000,000 that matures in 10…

A: The minimum amount of payment is computed below:

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: An IOU agreement was made between two persons. For a face value of P100,000, it was agreed that the…

A: A bond is an instrument that obligates the issuer to pay the buyer pre-determined interest. The…

Q: Suppose GHI Bank has a portfolio of 8-year fixed rate mortgages with total principal amount of $50…

A: On any notional amount, a rate of interest swap is an agreement to exchange a series of money flows…

Q: An investor who owns a interest rate swap pay six-month LIBOR and receive 18.1% (semi-annual…

A: The given details are:The notional Principal: 95 million EuroReceive a fixed rate of 18.1% with…

Q: A2) A semi-annual pay interest rate swap where the fixed rate is 6.00% (with semi-annual…

A: As per the given information: Fixed-rate - 6.00%(with semi-annual compounding)Remaining life - 8…

Q: (mark-to-market) You enter a short position in a € future contract with the size of €125,000 today.…

A: Future contracts are contracts done today but settled on the date and rate specified in the contract…

Q: 2. You are given the following table of spot rates: Year Spot rates 1 3.5% 3.8% 4.6% 4 5.1% Ant and…

A: The conceptual formula:

Q: A. Determine the swap's annualized fixed rate, given the current interest rate term structure as…

A: A. Calculate the discounting factor (D1) at initiation by the formula. The n is the number of days…

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: 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: On January 1, 2023, Fontaine Corporation issued an $800,000 notes payable to Allegheny State Bank.…

A: In a financial context, a swap benefit refers to the financial advantage or cost savings that a…

Q: Consider a one-year interest rate swap with semi-annual payments, based on 30/360 day count…

A: Annualized fixed rate refers to the rate of return by considering return on the average basis of a…

Q: Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An…

A: LIBOR can be extended as London Inter-bank Offered Rate. It is the rate at which banks lend money to…

Q: A firm enters into a five-year fixed for float agreement one year ago. Because one year has passed…

A: Value of a plain vanila swap = value of  receipt leg(Vr) - value payment leg (Vp) In this given…

Q: ) Assume that the risk-free rate is 7% per annum (continuous compounding) for all maturities.…

A: Forward rate is the rate that is expected in the future and is based on the spot rate and interest…

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: An investor who owns a interest rate swap pay six-month LIBOR and receive 2.38% (semi-annual…

A: Here, Notional Principal is 99 million Euro Receive six month LIBOR of 2.38% with semi annual…

Q: Currently the short term (1 to 12 month) borrowing rate is 3.50% per year and the lending rate over…

A: We have the short term borrowing and lending rate. We need to find a repo rate from the given…

Q: Suppose two firms enter into a 4-year credit default swap on in March 2021. Assume the notional…

A: Quarterly payment refers to the payment made in each quarter by the borrower to the lender for the…

Q: In 2020, your firm' s sales were $1,500,000, its net income was $400,000, and the dividend payment…

A: The dividends are the returns provided to the shareholders by the company. The dividend is the…

Q: A fixed interest security pays coupons of 5% per annum convertible half-yearly in arrears. The…

A: Coupon Rate: 5% per annum, convertible half-yearly.Redemption Price: 110% of the face value…

Q: Let's imagine that the OIS rates for one year and two years are 2% and 4% respectively. Now, let's…

A: Dear student, kindly check the answer in the explanation box below.Explanation:Part 1: Answer:The…

Q: Suppose that a bank has agreed to the following terms of an interest rate swap: - The notional…

A: Bond-price valuation method: Finding a bond's fair market value is known as bond valuation. The…

Q: Suppose that oil forward prices for 1 year, 2 years, and 3 years are $109, $128, and $134 per…

A: Swap price refers to the price used for a derivative contract while valuing one asset for another…

Q: Consider a contract that caps the LIBOR interest rate on $10,000 at 8% per annum (with quarterly…

A: The London Interbank Offer Rate, written as LIBOR, is the global reference rate for unsecured…

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: (mark-to-market) You enter a long position in a € future contract with the size of €125,000 today.…

A: Future contracts are contract done today but settled on the date and rate specified in the contract…

Q: (mark-to-market) You enter a long position in a € future contract with the size of €125,000 today.…

A: Futures Price today = Spot Rate x e (6% - 3.3%)* 90/360= 1.38 x e (0.06 - 0.033) x 90/360= 1.38 x e…

Q: nilla interest rate swap with a company named NeverDown. Under the terms of the swap, the hedge fund…

A: Interest received = six-month LIBOR Interest paid = 8% (fixed) Notional principal = 100000000 At…

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: An investor pays P for an annuity which provides payments of 140 at the beginning of each month for…

A: An annuity is a financial product or contract designed to provide a regular stream of income for an…

Q: You signed a 15-year interest swap (principal USD 1,000,000) with annual payments to pay fixed USD…

A: The majority of swaps involve cash flows based on a fictitious par value, such as a mortgage or…

Q: plain in detail how a five year plain vanilla interest rate swap with a notional value of $1,000,000…

A: In this question we will be explaining the 5 Years Vanilla Interest Payment SWAP with a notional…

Q: Vijay

A: Part 2: Explanation:Step 1: Calculate the fixed payments:The notional principal of the swap is…

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.