Question

In: Finance

You are given the following spot rates: Time Spot Rate 0.25 2.2% 0.50 2.8% 0.75 3.1%...

You are given the following spot rates:

Time	Spot Rate
0.25	2.2%
0.50	2.8%
0.75	3.1%
1.0	3.7%

Consider a one-year interest rate swap with a notional value of 3000. Determine the swap interest rate per quarter.

Expert Solution

Answer-

We need to first calculate the discount factors

Z 90 = 1 / 1 + [ ( 0.022 x 90 / 360) ]
Z 90 = 1 / [1 + 0.0055]
Z 90 = 1 / 1.0055
Z 90 = 0.9945

Z 180 = 1 / 1 + [ ( 0.028 x 180 / 360 )]
Z 180 = 1 / [1 + 0.014 ]
Z 180 = 1 / 1.014
Z 180 = 0.9862

Z 270 = 1 / 1 + [ ( 0.031 x 270 / 360 )]
Z 270 = 1 / [1 + 0.02325 ]
Z 270 = 1 / 1.02325
Z 270 = 0.9773

Z 360 = 1 / 1 + [ ( 0.037 x 360 / 360 )]
Z 360 = 1 / [1 + 0.037 ]
Z 360 = 1 / 1.037
Z 360 = 0.9643

The swap interest rate per quarter = 1 - Z 360 / ( Z 90 + Z 180 + Z 270 + Z 360)

The swap interest rate per quarter = 1 - 0.9643 / ( 0.9945 + 0.9862 + 0.9773 + 0.9643)

The swap interest rate per quarter = 1 - 0.9643 / 3.9223

The swap interest rate per quarter = 0.0357 / 3.9223

The swap interest rate per quarter = 0.009102

The swap interest rate per quarter = 0.9102 %

The swap interets rate annually = 0.9102 % x 360 / 90 = 3.641 %

For the notional value of 3000, the quarterly amount will be = 0.9102 % x 3000 = 0.009102 x 3000 = 27.306

jeff jeffy answered 1 year ago

Given the following spot rates and assuming the bonds and the time periods are semi-annual: Time...

Given the following spot rates and assuming the bonds and the time periods are semi-annual: Time Spot Rate 1 3.00% 2 3.30% 3 3.50% 4 3.90% 5 4.40% 6 4.75% 7 4.95% 8 5.05% 9 5.15% 10 5.25% 11 5.40% 12 5.50% 13 5.60% 14 5.65% 15 5.75% 16 5.80% 1.What is the price of a 4% coupon bond maturing in 5 years? 2. What is the YTM on the above bond? 3. What is the implied forward rate on...

how to make a mole fraction of 0.25, 0.50, 0.75 ethyl acetate and cyclohexane having a...

how to make a mole fraction of 0.25, 0.50, 0.75 ethyl acetate and cyclohexane having a total volume of 5 or 10 ml

of a concrete slab (ksi): 2.5, 3.5, 2.2, 3.2, 2.9, 4.3, 3.7, 3.4, 3.1, 2.8, 1.9,...

of a concrete slab (ksi): 2.5, 3.5, 2.2, 3.2, 2.9, 4.3, 3.7, 3.4, 3.1, 2.8, 1.9, and 2.1. (a) Compute the mean and standard deviation of the above data set (b) Compute the 25th, 50th, 75th and 90th percentile values of the compressive strength from the above dataset (c) Construct a boxplot for the above data set (d) Check if the largest value is an outlier following the z-score approach)

Given the following table of spot and coupon rates for Treasury Securities. Calculate the theoretical spot...

Given the following table of spot and coupon rates for Treasury Securities. Calculate the theoretical spot rate for the 2 years Treasury Period Years Yearly Spot Rate Yearly Coupon Rate 1 0.5 4.50% 4.50% 2 1 4.75% 4.75% 3 1.5 5% 4 2 5.25%

The spot exchange rate for the British pound is $1.2576. The U.S. interest rate is 0.25...

The spot exchange rate for the British pound is $1.2576. The U.S. interest rate is 0.25 percent, and the British interest rate is 0.50 percent. A futures contract on the exchange rate for the British pound expires in 110 days. (a) Find the appropriate futures price. [3M] (b) Find the futures price under the assumption of continuous compounding. [3M] (c) Suppose the actual futures price is $1.3250. Is the future contract mispriced? If yes, how could an arbitrageur take advantage...

1)If spot rates are 3.1% for one year, 3.5% for two years, and 3.8% for three...

1)If spot rates are 3.1% for one year, 3.5% for two years, and 3.8% for three years and 4.0% for four years, the price of a $100 face value, 4-year, annual-pay bond with a coupon rate of 5% is equal to: 2) The following spot and forward rates are provided: Current 1-year spot rate is 5.5%. One-year forward rate one year from today is 6.63%. One-year forward rate two years from today is 8.18%. The value of a 3-year, 6%...

2) Suppose that the production function is given as: q=L^0.75 K^0.25 a) What is the formula...

2) Suppose that the production function is given as: q=L^0.75 K^0.25 a) What is the formula for the average product of labor, AP? in terms of L and K? b) What is the formula for the marginal product of labor, MP? in terms of L and K ? c) If at the current production, cost minimizing level of capital, ?=16, and the market price of labor (?) is three times the rental price of capital (?), what is the cost...

you have the following assumptions and spot rates - solve for the implied forward rates

you have the following assumptions and spot rates - solve for the implied forward ratest0t1t2t3One-year rate1.330%?????????Two-year rate1.590%??????Three-year rate1.810%Four-year rate2.030%Implied forward 1 year ratet+1f1 X at time t+1 (in one year)Implied forward 1 year ratet+2f1 xat time t+2 (in two years)Implied forward 2 year ratet+1f2 xat time t+1 (in one year)Implied forward 1 year ratet+3f1 xat time t+3 (in three years)Implied forward 2 year ratet+2f2 xat time t+2 (in two years)

Spot and forward exchange rates for the British pound are as follows: Spot exchange rate =...

Spot and forward exchange rates for the British pound are as follows: Spot exchange rate = 1.4500 USD/GBP, 90-day forward exchange rate =1.4416 USD/GBP, 180-day forward exchange rate = 1.4400 USD/GBP. Additionally, a 180-day European call option to buy 1 GBP for USD 1.42 costs 3 cents, and a 90-day European put option to sell 1 GBP for USD 1.49 costs 3 cents. Which of the following is the correct arbitrage strategy? Select one: Buy the 90-day forward contract and...

You are given the following information : Spot exchnage rate - Canadian dollar 0.665 per Euro...

You are given the following information : Spot exchnage rate - Canadian dollar 0.665 per Euro 3 months forward rate - Canadian dollar 0.670 per Euro interest rates - Canadian dollar 9% p.a and Euro is 7% p.a Required What operation could you carry out to take advantage of possible arbitrage opportunity?