hat 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
hat 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
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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Question
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
Transcribed Image Text:Maturity (years)
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Table 1
Zero rate
0.20%
1.40%
2.50%
3.50%
4.40%
5.20%
5.90%
6.50%
7.00%
7.40%
7.70%
7.90%
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