Consider the following diagram: ABC pays 9% on £10m . ABC plc a. THE SWAP DEAL C. Every six months for the next two years ABC receives 9% on £10m Who would pay how much if on a particular settlement day LIBOR was 6%? ABC pays six-month £ LIBOR on £10m Bank as swap counterparty The bank will pay ABC plc £600,000. b. The bank will pay ABC plc £150,000. ABC plc will pay the interest due to the bank of £300,000. d. ABC plc will pay the interest due to the bank of £600,000. *

Consider the following diagram: ABC pays 9% on £10m . ABC plc a. THE SWAP DEAL C. Every six months for the next two years ABC receives 9% on £10m Who would pay how much if on a particular settlement day LIBOR was 6%? ABC pays six-month £ LIBOR on £10m Bank as swap counterparty The bank will pay ABC plc £600,000. b. The bank will pay ABC plc £150,000. ABC plc will pay the interest due to the bank of £300,000. d. ABC plc will pay the interest due to the bank of £600,000. *

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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Use the following information for questions 12-15: Under the terms of an interest rate swap, a financial institution has agreed to pay 10% per annum and to receive the 3-month LIBOR in return on a notional principal of $50 million with payments exchanged every 3 months. The swap has a remaining life of 14 months. The current rate being swapped for 3- month LIBOR is 11.8% per annum for all maturities. The 3-month LIBOR rate 1 month ago was 12% per annum. All rates are compounded quarterly.
You work at the interest rates swaps trading desk of an investment bank. Exactly three years ago you entered into an interest rate swap with a client with a notional of €200 million. The client is paying a fixed rate of 4% with semi-annual frequency and receiving the floating rate LIBOR with semi-annual frequency. The interest rate swap had a maturity of six years when it was initiated.Today is payment day and you have already exchanged the cash-flows for today. What is the value of this interest rate swap for you? Use the data in Table 1. Please show your calculations. Discuss your result. Rates are continuously compounded in image attachedb
Finance Suppose two companies, Firm A and B, both wish to borrow $10 million for five years and have been offered the following rates firm A fixed rate 4%, firm A floating rate six month LIBOT -0.1% firm B, fixed 5.2% floating six months libor +0.6% Enter into a swap agreement to exchange interest-rate payments such that: – Firm A ends up with floating-rate funds. – Firm B ends up with fixed-rate funds. explain how much A and b have after a swap?With a swap, Firm A now pays LIBOR − 0.35% With a swap, Firm B now pays 4.95%. Explain how -0.35% and 4.95% are attained with proper working
Answer a) and b) Problem 3: Interest Swap Companies A and B have been offered the following rates per annum on a $50 million five-year loan: Company A Company B Floating LIBOR +0.7% LIBOR +1.0% Fixed 6.0% 7.5% Company A requires a floating-rate loan and company B requires a fixed-rate loan. a) Design a swap that will net a bank, acting as an intermediary, 30 basis points (0.3%) per annum and that is equally attractive to the two companies. Illustrate the swap with a diagram. b) Determine the effective financing costs for A and B.
Company A borrows $2 million at Libor + 3% for five years and Company B takes a $2 million five-year loan at a fixed 7% interest rate. The two companies enters into an interest rate swap arrangement, where Company A will pay Company B a fixed 6% interest rate on a notional $2 million and Company B will pay Company A Libor + 2% on a notional $2 million. What has been accomplished? Question 16 options: Both companies have been able to link the payment to Libor Company A has achieved payments mirroring a fixed interest rate while Company B will be paying a floating rate Company A has achieved payments mirroring a floating interest rate while Company B has achieved a fixed rate Both companies will be paying the same interest rate for the duration of the loan
A $30,000,000 interest rate swap has a 12-month maturity, and was entered 2 months ago. This means the swap has a remaining life of 10 months. The swap pays interest quarterly, and it stipulates that the fixed rate is 4.5%, while the floating rate is the 3-month LIBOR +1%. Two months ago, when the swap was entered, 3-month LIBOR was 2.9%. The 3-month LIBOR forward rates and continuous time zero-coupon prices are given in a table below. Use the zero coupon prices to discount cash-flows. 3-month LIBOR Forward Rates Term rate 1x4 2.90% 2x5 2.85% 3x6 2.84% 4x7 2.88% 5x8 2.90% 6x9 2.91% 7x10 2.92% 8x11 2.92% 9x12 2.92% Zero-Coupon prices T (month) Price 1 0.9976 2 0.9953 3 0.9929 4 0.9904 5 0.988 6 0.9856 7 0.9831 8 0.9807 9 0.9783 10 0.9761 11 0.9737 12 0.9712 (Important hint: since the swap was entered 2 months ago, and makes quarterly payments, in the remaining 10 months, payments should be expected in 1 month, 4 months, 7 months and 10 months. Discount cash flows accordingly.)…
5. Suppose you have a 2.5-year remaining on an interest rate swap with a notional principal of $10,000, 000 between Company A and Company B. Company A pays fixed rate and Company B pays the float rate. Fixed and float payments are exchanged every year and the last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and the floating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago, is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is 3.50%. Calculate the present value of the fixed and floating legs of the swap, and determine the swap's net present value from Company A's perspective. Assume annual compounding for discounting.
Netflix company has entered into a plain vanilla interest rate swap on $2,500,000 notional principal. The company pays fixed rate of 7.0% on payments that occur at 60-day intervals. Six payments remain with the next one due in exactly 60 days. On the other side of the swap, the company receives payments based on the LIBOR rate. Describe the transaction that occurs between the company and the dealer at the end of the first period if the appropriate LIBOR rate is 8.5%.
Suppose you can borrow and lend at the annual interest rate of 6% per annum. The IBM stock is trading at $200. It is not going to pay any dividend in one year. Use this information to answer the following three questions. 20. What is the fair forward price of a forward contract which calls for the delivery of 1 share of IBM stock at the end of one year? A. $216 B. $210 C. $214 D. $212 21. If the actual forward price Fa is $214, your arbitrage strategy is to A. buy one share of IBM, borrow $200, and sell the forward B. buy one share of IBM, borrow $212, and buy the forward C. short one share of IBM, lend $200, and buy the forward D. short one share of IBM, borrow $200, and sell the forward 22. At the end of one year, suppose IBM stock price is St, then the cash flow in the spot (stock) market is _, the cash flow in the forward contract is and the arbitrage profit is A. ST, 214- ST, 2 B. -St, ST-214, 2 C. -ST, 214-ST, 2 D. ST, ST-214, 2

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