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1.A company can invest funds for five years at 6%...

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1.A company can invest funds for five years at 6% per annum with semiannual compounding. The five-year swap rate is 6.3%. What floating rate of interest can the company earn? 2.Suppose that the yield curve is flat at 5% per annum with continuous compounding. A swap with a notional principal of $100 million in which 6% is received and six-month LIBOR is paid will last another 15 months. Payments are exchanged every six months. The six-month LIBOR rate at the last reset date (three months ago) was 7%. (i) What is the value of the fixed-rate bond underlying the swap? ii) What is the value of the floating-rate bond underlying the swap? (iii) What is the value of the payment that will be exchanged in 3 months? (iv) What is the value of the payment that will be exchanged in 9 months? (v) What is the value of the payment that will be exchanged in 15 months? (vi) What is the value of the swap?

 

Paper#5520 | Written in 18-Jul-2015

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