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%

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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…

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

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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…

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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?

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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…

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

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

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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…

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

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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.