None Assume that six months have passed after initiation of an equity swap. Recallyour initial swap-fixed-rate was 1.48%. In the beginning of the period, the valueof equity (stocks) was $88 whereas the value of equity today is $125. Finally,assume that the notional amount is $5 million. The new discount factors arethe following:TTMPVF0.5yr0.981.5yr 0.95vered2.5yr 0.923.5yr 0.89Can you calculate the value of your equity swap today?Hint: Use the formula Value of Equity Swap:(EquityIndexToday/EquityIndexBeginPeriod PVF TerminalYear-Fixed Rate(#Days/360) * SUM of PVFSDuringLife SwapPlease round your answer to the nearest three decimals if needed. Do nottype the $ symbol.nswer2,375,512.727 margin of error +/- 2%

Important Note:The provided answer ($2,375,512.727) seems significantly off compared to our…

Answered: Assume that six months have passed…

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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Assume that six months have passed after initiation of an equity swap. Recall your initial swap-fixed-rate was 1.73%. In the beginning of the period, the value of equity (stocks) was $90 whereas the value of equity today is $143. Finally, assume that the notional amount is $5 million. The new discount factors are the following: TTM PVF 0.5yr 0.99 1.5yr 0.96 2.5yr 0.92 3.5yr 0.88 Can you calculate the value of your equity swap today?
Suppose that a trader observes the rates provided in the following table. Based on these rates, IRP is and covered interest arbitrage is _ (Hint: Use the formal equation for IRP and round your calculations to 3 decimal places.) Ss/e 1.1655 F6.$/E 1.1690 6-month is 1.8% 6-month ie 1.5% Onot holding; not possible holding; possible not holding; possible holding; not possible
Use the data from Q5, and given the following annualized interest rates: r(30) = 4.0%; r(120) = 4.5%; r(210) = 5.0%, and; r(300) = 5.5% sixty days after the initiation of the pay-fixed swap. If the pay-fixed and receive-floating swap is to mark-to-the-market now, who pays whom and how much? Use $5m notional principal. Pay-fixed leg pays $24,214.41 to pay-floating leg. Pay-floating leg pays $24,214.41 to pay-fixed leg. Pay-fixed leg pays $25,455.45 to pay-floating leg. Pay-floating leg pays $25,455.45 to pay-fixed leg.
1. Term structure of interest rates and swap valuation Suppose the current term structure of interest rates, assuming annual compounding, is as follows: s1 82 83 84 S5 86 7.0% 7.3% 7.7% 8.1% 8.4% 8.8% What is the discount rate d(0, 4)? (Recall that interest rates are always quoted on an annual basis unless stated otherwise.) Please submit your answer rounded to three decimal places. For example, if your answer is 0.4567 then you should submit an answer of 0.457. Enter answer here
Suppose we observe the following rates: 1R₁ = 0.95%, 1R2 = 1.45%, and E(2r1) = 0.927%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L2 ? Note: Do not round intermediate calculations. Round your percentage answer to 3 decimal places (i.e., 0.12345 should be entered as 12.345). Liquidity premium %
You are currently in an equity swap receiving the QQQ return and paying 4% fixed on a nominal value of $2.5M. The swap has quarterly payments and 5 quarters left. Below is the relevant term structure of LIBOR rates. (a) Complete the following table by filling in the zero-coupon price of a $1 bond. (Enter your answer with 4 decimals, such as 0.9987.) LIBOR rates Zero-coupon Price L(90) 0.0245 L(180) 0.0300 L(270) 0.0330 L(360) 0.0345 L(450) 0.0355 (b) What is the value of the fixed leg, based on a nominal value of $2.5M? (Enter your answer in dollars, without the dollar sign, with 0 decimal, such as 2000000.) (c) What is the value of the variable leg, based on a nominal value of $2.5M? (Enter your answer in dollars, without the dollar sign, with 0 decimal, such as 2000000.) (d) What is the value of the swap, based on a nominal value of $2.5M? (Enter your answer in dollars, without the dollar sign, with 0 decimal, such as 2000000; if value is negative, enter with a negative…
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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 -14.29
Please help me understand how to answer the last equation?
Consider a 1-year treasury bill that currently earns 3.25%. The increase in rates for the above bill is shown as follows: Year Increase in rate 1 year from now 3.6% 2 years from now 3.85% The liquidity premium is as follows: 2-year securities 3-year securities 0.07% 0.15% Assume that if the liquidity premium theory is correct. Calculate the current rate on 3-year Treasury securities.
Suppose the average return on FTSE TMX Canada long-term bonds is 7.00% and the standard deviation is 9.00% and the average return and standard deviation on T-bills are 3.30% and 2.50%, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What is the probability that in any given year, the return on long-term corporate bonds will be greater than 9% ? Less than 0% ? Greater than 9% Less than 0% % % b. What is the probability that in any given year, the return on T-bills will be greater than 9%? Less than 0%? Greater than 9% Less than 0% % % c-1. In 1981, the return on FTSE TMX Canada long-term bonds was -4.29%. How likely is it that such a low return will recur at some point in the future? Probability % c-2. T-bills had a return of 9.00% in this same year. How likely is it that such a high return on IT-bills…

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