The table below shows the spot rates for the given lengths of time.Numbers of yearsEffective Annual2346.4%4.7%5,3%6%6.2%7%SpotCalculate the swap rate for a three-year deferred, six-year Interest rate swap with settlement at the end of the year.O A. 6.43%O B. 7.25%OC 8.65%.O D. 9.05%O E. 10.2%

Spot Rate is the price of financial contracts on the spot date. While Forward Rate is the price of a…

The table below shows the spot rates for the given lengths of time. Numbers of years 1 2 3 4 4.7% 5.3% Effective Annual 4% 6% 6.2% 7% Spot Calculate the swap rate for a three-year deferred, six-year interest rate swap with settlement at the end of the year. O A 6.43% O B. 7.25% OC8.65% O D.9.05% O E. 10.2%

The table below shows the spot rates for the given lengths of time. Numbers of years 1 2 3 4 4.7% 5.3% Effective Annual 4% 6% 6.2% 7% Spot Calculate the swap rate for a three-year deferred, six-year interest rate swap with settlement at the end of the year. O A 6.43% O B. 7.25% OC8.65% O D.9.05% O E. 10.2%

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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Concept explainers

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.

Question

The table below shows the spot rates for the given lengths of time.
Numbers of years
Effective Annual
2
3
4
6.
4%
4.7%
5,3%
6%
6.2%
7%
Spot
Calculate the swap rate for a three-year deferred, six-year Interest rate swap with settlement at the end of the year.
O A. 6.43%
O B. 7.25%
OC 8.65%.
O D. 9.05%
O E. 10.2%

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Consider the following countinuous compunding LIBOR spot rates: 3M (2,2% pa.), 6M (2,3% pa.), 9M (2,6% pa.), 12M (3% pa.). Find a simple compunding rate pa. (interest compounded each 4M) which is equivalent to forward rate pa (under countinuous compunding for period starting from the end of 6M till the end of 9M).
Complete the following using present value. (Use the Table provided.) (Do not round intermediate calculations. Round the "Rate used" to the nearest tenth percent. Round the "PV factor" to 4 decimal places and final answer to the nearest cent.) Amount desired at end of period 6,600 Length of time 10 years Rate 2% Compounded semiannually On PV Table 12.3 Period used 120 Rate used 0.2 % PV factor used 0.2400 $ PV of amount desired at end of period 1,584.08
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For each of the following cases, indicate (a) what interest rate columns and (b) what number of periods you would refer to in looking up the present value factor. (1) In Table 3 (present value of 1): Number of Discounts Annual Rate Years Involved per Year Case A 9% 7 Case B 10% 8 Annually Semiannually Case C 8% 8 Semiannually Case A Case B Case C (a) (b) % periods % periods % periods (2) In Table 4 (present value of an annuity of 1): Annual Rate Number of Years Involved Number of Payments Involved Frequency of Payments Case A 8% 15 15 Annually Case B 8% 4 4 Annually Case C 12% 8 16 Semiannually (a) Case A % Case B % (b) periods periods Case C % periods
Suppose today’s LIBOR rates for 1, 2, 3, 4, 5, and 6 months are 1.6%, 1.8%, 2.0%, 2.0%, 1.9%, and 1.6% with continuous compounding. What are the forward rates for future 1-month periods?
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