Question

In: Finance

ABC bank has agreed to receive 3-month LIBOR and pay 8% per annum on a notional...

ABC bank has agreed to receive 3-month LIBOR and pay 8% per annum on a notional principal of $100 million. The swap has a remaining life of 11 months. The LIBOR spot rates for 2-month, 5-month, 8-month, and 11-month, are 6.5%, 7%, 7.5%, and 8%, respectively. The 3-month LIBOR rate at the last payment date was 6%. Estimate the value of the swap to ABC Bank by estimating the values of the floating leg and the fixed leg. Use the 30/360 day count method.

A. The present value of the fixed leg?

B. The present value of the floating leg?

C. The value of the swap to ABC bank?

Solutions

Expert Solution


Related Solutions

Under the terms of an interest swap, a bank has agreed to pay 10% per annum...
Under the terms of an interest swap, a bank has agreed to pay 10% per annum and receive three-month LIBOR in return on a notional principal of $100 million with payments being exchanged every three months. The swap has a remaining life of 11 months. The average of the bid and offer fixed rates currently being swapped for three-month LIBOR is 12% per annum for all maturities. The three-month LIBOR rate one month ago was 11.8% per annum. All rates...
You approach ABC Bank for a loan. They offer a rate of 5.40 percent per annum...
You approach ABC Bank for a loan. They offer a rate of 5.40 percent per annum on a mortgage amount of $750,000 over 22 years, with installments payable at the end of each month (Hint: the last installment will pay off the mortgage). A rival Neobank named Big Loan Ltd offers a rate of 5.10% per annum however with fortnightly installments, on the same amount with the same term of maturity of 22 years. a) Calculate the loan installment payments...
You approach ABC Bank for a loan. They offer a rate of 5.40 percent per annum...
You approach ABC Bank for a loan. They offer a rate of 5.40 percent per annum on a mortgage amount of $750,000 over 22 years, with instalments payable at the end of each month (Hint: the last instalment will pay off the mortgage). A rival Neobank named Big Loan Ltd offers a rate of 5.10% per annum however with fortnightly instalments, on the same amount with the same term of maturity of 22 years. a)   Calculate the loan instalment payments under...
In an interest rate swap offered by a bank, Company A could pay 3.5% per annum...
In an interest rate swap offered by a bank, Company A could pay 3.5% per annum and receive six-month LIBOR in return on a notional principal of $100 million with payments being exchanged every six months. The swap has a remaining life of 16 months. Six-month forward LIBOR for all maturities is currently 3.8% per annum. The six-month LIBOR rate two months ago was 3.2% per annum. OIS rates for all maturities are currently 3.0% with continuous compounding. All other...
You’re a bank having made a loan of $250 million. The borrower pays 3-month LIBOR +...
You’re a bank having made a loan of $250 million. The borrower pays 3-month LIBOR + 1.5%. The loan began two months ago, so the next re-pricing (interest rate setting) date is in one month. What is your risk, and how could you hedge? a) Your risk is that LIBOR will increase within a month; you can hedge by entering into a 1x4 FRA as a “lender” of $250 million. b) Your risk is that LIBOR will increase within a...
Burlingame Bank and the ABC Manufacturing Corp. enter into the following 7-year swap with a notional...
Burlingame Bank and the ABC Manufacturing Corp. enter into the following 7-year swap with a notional amount of $75 million and the following terms: Every year for the next seven years, Burlingame Bank agrees to pay ABC Manufacturing 7% per year and receive from ABC Manufacturing LIBOR. a. What type of swap is this? b. In the first year payments are to be exchanged, suppose that LIBOR is 4%. What is the amount of the payment that the two parties...
Alphaget Inc., borrows $1,500,000 at LIBOR plus a lending margin of 1.25 percent per annum on...
Alphaget Inc., borrows $1,500,000 at LIBOR plus a lending margin of 1.25 percent per annum on a three-month rollover basis from a London bank. If three-month LIBOR is 4 ½ percent over the first three-month interval and 5 3/8 percent over the second three-month interval, how much will Alphaget pay in interest over the first year of its Eurodollar loan? Select one: a. $43,057 b. $46,406 c. $47,658 d. $49,432
The three-month dollar interest rate in New York is 3% per annum. Alternatively, the three-month euro...
The three-month dollar interest rate in New York is 3% per annum. Alternatively, the three-month euro interest rate in Frankfort is 5% p.a. The current $/€ spot exchange rate is $1.1340/€. The euro three-month forward rate is quoted at $1.1326/€. Show how a U.S. arbitrageur would exploit a possible covered interest arbitrage opportunity with a nominal $80,000,000. Don’t start with the formula. Explain in your own words the transactions the arbitrageur would execute and calculate the profit/loss the arbitrager would...
5. You want to enter a pay-fixed, receive-floating interest rate swap with a notional amount of...
5. You want to enter a pay-fixed, receive-floating interest rate swap with a notional amount of $15 million and quarterly payments for one year. Interest calculations will use a 90/360 convention. The yield curve is as follows:Term Rate 90 3.0% 180 3.2% 270 3.3% 360 3.5% a. (5 points) What is the correct fixed rate term for this swap? b. (5 points) In 90 days, how much money will you pay or receive (net)? c. (5 points) Assume that you...
An online bank is offering to pay 0.25​% interest per month on deposits. Your local bank...
An online bank is offering to pay 0.25​% interest per month on deposits. Your local bank offers to pay 0.65​% interest quarterly​ (every 3​ months). Which is the higher interest​ rate?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT