Please correct answer and don't use hand rating Consider an equity swap where the notional amount is $5 million, and the equity leg isbased on the return of an equity index, which is expected to be 8%. The floating rate legis based on 6-month LIBOR, which is currently 2.5%, and the swap lasts for One year.The discount rate for present value calculations is 2.5%. Calculate the value of theequity swap.

1. - Notional amount: $5 million - Equity leg return: 8% - Floating rate (6-month LIBOR): 2.5%…

Answered: Consider an equity swap where the…

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

See similar textbooks

Similar questions

Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 7% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 7%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $10 million.
Suppose the 1-year and 2-year OIS rates are 2% and 4%, respectively. Consider an OISswap with two years to maturity where you receive 3% and pay the floating reference ratewith principal 1 million. If the payments are made annually with annual compounding, what is the value of the swap
Your firm has semi-annual floating rate payment obligations for the next two years computed on a nominal value of $10M. You observe the following LIBOR spot rates: 6 months = 1.5%, 12 months = 2%, 18 months =2.2%, 24 months=2.5%. Find the swap fixed rate. How would you use the swap in order to hedge your position (floating rate payment obligations)?
For an interest rate swap, if i have 7-year floating rate of 4% and a 7 year fixed rate of 5.4% and both loans are valued at 12 million. How do I find the value of the swap? NPV or PV.
PLease use actuarial science work to solve this question. The answer is (a) 0.1774, (b) 0.2124, (c) 0.3020 Thank you so much.
Vijay
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%
You are trying to buy an interest rate swap that will give you floating LIBOR interest for the next 3 years. The notional principal is $100,000 and the settlement is annual. If the annual LIBOR forward rates for the next three years are such that f0,1 = 3%, f1,2 = 3.5% and f2,3 = 4% (fx,y = forward rates between year x and y), determine the fixed rate of this interest rate swap. (Note: Fixed rate in an interest rate swap is a choice variable as in this case. You can buy an interest rate swap as a speculator without having any assets.)
A credit default swap requires a semi annual payment at the rate of 200 basis points per year. The principal is $1 billion and the credit default swap is settled in cash. A default occurs after four years and two months, and the calculation agent estimates that the price of the cheapest deliverable bond is 60% of its face value shortly after the default. List the cash flows and their timing for the seller of the credit default swap..
A Credit Default Swap is structured like the one below for a protection of $100 million. If payments are made annually, what are the cash flows from A to B if there is a default after 2 years and 2 months and recovery rate is 40%? And what are the cash flows from B to A? 70 bps per year Default Default Protection Protection Buyer, A Seller, B Payoff if there is a default by reference entity=100(1-R)
Assume the Liquidity Premium Theory of the Term Structure of Interest Rates holds. The WSJ quotes 0.25% annual yield on a one-year T-note and 0.5% annual yield on a two-year T-note. Suppose the annual yield on a one-year T-note is expected to stay at 0.25% over the next 2 years. What must be the liquidity premium on a two-year T-note?
Assume that the spot price of an underlying asset is Php250 and suppose the 10% is the annual risk-free interest rate. At equilibrium, the 6-month forward price of the underlying asset should be nearest to Php275.00 Php262.50 Php256.25 Php250.00

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS