Use the following LIBOR-zero rates to find appropriate forward rates: period (years) LIBOR-zero (cont.comp) forward rate for the nth year (cont.comp) 0.5 4.04% 1 3.05% ? 1.5 3.50% ? Questions 1) Find the forward rate for year 1st year and for the 1.5th year , respectively. 2) Find the value of the FRA where you will receive 9% (with semi-annual compounding) on a principal of $100 million for 6 months, which the FRA term starts in year 1 and end in year 1.5. *hint: you would need to convert the appropriate forward rate with continuous compounding from question #1 into a semi-annual compounding rate first. 3) 1 year later, if the 6 month LIBOR turns out to be 5% with semi-annual compounding, how much do you need to pay or receive at 1year point?
Use the following LIBOR-zero rates to find appropriate forward rates: period (years) LIBOR-zero (cont.comp) forward rate for the nth year (cont.comp) 0.5 4.04% 1 3.05% ? 1.5 3.50% ? Questions 1) Find the forward rate for year 1st year and for the 1.5th year , respectively. 2) Find the value of the FRA where you will receive 9% (with semi-annual compounding) on a principal of $100 million for 6 months, which the FRA term starts in year 1 and end in year 1.5. *hint: you would need to convert the appropriate forward rate with continuous compounding from question #1 into a semi-annual compounding rate first. 3) 1 year later, if the 6 month LIBOR turns out to be 5% with semi-annual compounding, how much do you need to pay or receive at 1year point?
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 LIBOR-zero rates to find appropriate forward rates: period (years) LIBOR-zero (cont.comp) forward rate for the nth year (cont.comp) 0.5 4.04% 1 3.05% ? 1.5 3.50% ? Questions 1) Find the forward rate for year 1st year and for the 1.5th year , respectively. 2) Find the value of the FRA where you will receive 9% (with semi-annual compounding) on a principal of $100 million for 6 months, which the FRA term starts in year 1 and end in year 1.5. *hint: you would need to convert the appropriate forward rate with continuous compounding from question #1 into a semi-annual compounding rate first. 3) 1 year later, if the 6 month LIBOR turns out to be 5% with semi-annual compounding, how much do you need to pay or receive at 1year point?
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