The term and price of zero-coupon bonds are given in the following table: price 1 year 0.98 2 year 0.95 3 year 0.91 4 year 0.89 Roger enters into a 4-year interest rate swap. He wants to swap the floating interest rates for a fixed interest rate. The level notional amount of the swap is 8,000 each year. Three years have elapsed and one year is left on the swap agreement. Calculate the market value of the swap if Roger decided to sell it today assuming the notional value is 8,000 and the 1-year spot interest rate is the implied 1-year spot rate from time 3 to time 4 *implied spot rate is the 1 year rate deferred 3 years derived from the table above.
The term and price of zero-coupon bonds are given in the following table: price 1 year 0.98 2 year 0.95 3 year 0.91 4 year 0.89 Roger enters into a 4-year interest rate swap. He wants to swap the floating interest rates for a fixed interest rate. The level notional amount of the swap is 8,000 each year. Three years have elapsed and one year is left on the swap agreement. Calculate the market value of the swap if Roger decided to sell it today assuming the notional value is 8,000 and the 1-year spot interest rate is the implied 1-year spot rate from time 3 to time 4 *implied spot rate is the 1 year rate deferred 3 years derived from the table above.
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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Transcribed Image Text:The term and price of zero-coupon bonds are given in the following table:
price
1 year
0.98
2 year
0.95
3 year
0.91
4 year
0.89
Roger enters into a 4-year interest rate swap. He wants to swap the floating interest
rates for a fixed interest rate. The level notional amount of the swap is 8,000 each year.
Three years have elapsed and one year is left on the swap agreement. Calculate the
market value of the swap if Roger decided to sell it today assuming the notional value is
8,000 and the 1-year spot interest rate is the implied 1-year spot rate from time 3 to
time 4
*implied spot rate is the 1 year rate deferred 3 years derived from the table above.
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