Al-Yamamah has just entered into a two-year floating-for-fixed swap contract, where payments are made every six months. The 6-month LIBOR is 4.82%. The 6 to 12 months forward LIBOR rate is 6.71% and the 12 to 18 month forward LIBOR rate is 7.81. The two-year swap rate is 7.2%. If the OIS rate is 3.5% and the term structure of the OIS rate is flat, what is the 18 to 24 month Forward LIBOR rate? All rates are semi-annually compounded, except for the OIS, which is continuously compounded. (Round to the closest hundredths. Rates should be in percentage form. E.g. 9.99%)
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Al-Yamamah has just entered into a two-year floating-for-fixed swap contract, where payments are made every six months. The 6-month LIBOR is 4.82%. The 6 to 12 months forward LIBOR rate is 6.71% and the 12 to 18 month forward LIBOR rate is 7.81. The two-year swap rate is 7.2%. If the OIS rate is 3.5% and the term structure of the OIS rate is flat, what is the 18 to 24 month Forward LIBOR rate? All rates are semi-annually compounded, except for the OIS, which is continuously compounded. (Round to the closest hundredths. Rates should be in percentage form. E.g. 9.99%)
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- Incredible Inc., a manufacturer of children’s toys, enters into a two-year plain vanilla interest rate swap, in which the corporation will receive a fixed rate and pay a floating rate of LIBOR. The notional amount on this swap is $75 million. Swap payments will be netted every 180 days, and the LIBOR requires the assumption of a 360-day year. The term structure of LIBOR on the swap initiation date is as follows: Days Rate (%) 180 3.50 360 3.55 540 3.60 720 3.70 a. What is the fixed rate determined on the swap initiation date? b. Calculate the swap value on the initiation date.nsurance company, IHI, is part of a swap agreement with investment bank Lachlin Bank on a notional principal of $100 million. IHI has agreed to pay Lachlin Bank the six month BBSW rate and receives 7% pa, convertible half-yearly. If the swap has a residual life of 18 months, and the next interest payment is due in six months, calculate the value of the swap for Lachlin, given BBSW rates (compounding continuously) for the corresponding 6, 12 and 18 month maturities are 6.91% pa, 7.3% pa, 7.35% pa and the half year BBSW rate on the next payment is known to be 7% pa compounding half-yearly. Give your answer in millions of dollars to 2 decimal places. Value = $ ___________ million ANSWER IN TYPING OTHER WISE DOWNVOTE YOUConsider a $10,000,000 1-year quarterly-pay swap with a fixed rate of 4.5% and a floating rate of 90-day LondonInterbank Offered Rate (LIBOR) plus 150 basis points. 90-day LIBOR is currently 3% and the current forward ratesfor the next four quarters are 3.2%, 3.6%, 3.8%, and 4%. If these rates are actually realized, at the second quarterlysettlement date, the fixed-rate payer in the swap will:a. receive a payment of $5,000b. receive a payment of $5,000c. receive a payment of $7,500d. neither make nor receive a payment
- A firm enters into a five-year fixed for float agreement one year ago. Because one year has passed the swap has exactly four more years remaining. Since the reset date for the next floating payment is today, the next applicable floating rate can be identified in the table below. Payments from each firm occur at the end of each year. Assume that the firm agreed to pay a fixed rate of 6.45% (based on annual compounding) and to receive the floating rate. The notional amount of the swap is $12 million. Use the following current spot term structure for annual interest rates (all based on continuous compounding) to determine the value of the plain vanilla, fixed for float interest rate swap. Term (years) Spot Zero Annual Interest Rates (based on continuous compounding) 0.5 5% 1 5.5% 1.5 6% 2 6.5% 2.5 7% 3 8% 3.5 8.5% 4 9% 4.5 9.5% 5 10%A U.S. company has entered into an interest rate swap with a dealer in which the notional principal is $50 million.The company will pay a floating rate of LIBOR and receive a fixed rate of 5.75 percent. Interest is paid semiannually,and the current LIBOR is 5.15 percent. Calculate the first payment. Assume that floating-rate payments will be madeon the basis of 180/360 and fixed-rate payments will be made on the basis of 180/365.a. $130,308.20, the floating-rate payer will receive b. $130,308.20, the fixed-rate payer will receivec. $50 million, the fixed-rate payer will pay d. $50 million, the floating-rate payer will paySuppose that a bank has agreed to the following terms of an interest rate swap:- The notional principal is CAD 300 million and the remaining life of the swap is 11 months.- The bank pays 8% per annum, and receives three-month LIBOR.- Payments are exchanged every three months.- The swap (fixed) rate is 11% per annum for all maturities.- The three-month LIBOR rate a month ago was 12.5% per annum. All rates are compounded quarterly. Estimate the value of the swap using a) a bond-price valuation method, and b) a FRAs-based method?
- On January 1, 20X1, Novak, Inc., enters into an interest rate swap and agrees to receive fixed and pay variable on a notional amount of $5,000,000. The contract calls for cash settlement of the net interest amount at December 31 of each year. The yield curve is flat, and the agreement is to last until December 31, 20X9. Both the fixed annual rate and the variable annual rate at January 1, 20X1, are 7.00%. The variable interest rate is reset at the end of each year and becomes effective for the next year. On December 31, 20X1, the variable rate is reset to 8.00% per year, and on December 31, 20X2, the variable rate is reset to 5.00%. 1. Compute the fair value of the swap agreement at December 31, 20X1. Asset or a liability?2. Compute the fair value of the swap agreement at December 31, 20X2. Asset or a liability?On January 1, 20X1, Novak, Inc., enters into an interest rate swap and agrees to receive fixed and pay variable on a notional amount of $5,000,000. The contract calls for cash settlement of the net interest amount at December 31 of each year. The yield curve is flat, and the agreement is to last until December 31, 20X9. Both the fixed annual rate and the variable annual rate at January 1, 20X1, are 7.00%. The variable interest rate is reset at the end of each year and becomes effective for the next year. On December 31, 20X1, the variable rate is reset to 8.00% per year, and on December 31, 20X2, the variable rate is reset to 5.00%. Required: Compute the fair value of the swap agreement at December 31, 20X1. Be sure to indicate whether it is an asset or a liability. Compute the fair value of the swap agreement at December 31, 20X2. Be sure to indicate whether it is an asset or a liability.The 9-month LIBOR rate is 5%, and the 6-month LIBOR rate is 4%, on the basis of continuous compounding and 365 days a year. The 3-month Eurodollar futures price quote for a contract with a delivery date in 6 months should be: a. 93.0000 b. 92.9384 c. 93.0351
- Continuously compounded LIBOR rates per annum for 6, 12, and 18-months are given in the table below. The 2-year swap rate is 3% per annum with payments made semiannually. What is the 2-year LIBOR/swap zero rate for 2 years? Use LIBOR discounting 0.5 - 2.0% 1.0 - 2.4% 1.5 - 2.6% 2.0 - ?On January 1, 20x1, ABC Co. obtained a five-year, ₱1,000,000 variable-rate loan with interest payments due at each year-end and the principal due on December 31, 20x5. As protection from possible fluctuations in current market rates, ABC Co. enters into an interest rate swap for the whole principal of the loan. Under the agreement, ABC Co. shall receive variable interest and pay fixed interest based on a fixed rate of 8%. Swap payments shall be made at each year-end. The following are the current market rates: Jan. 1, 20x1 8% Jan. 1, 20x2 9% Jan. 1, 20x3 12% 16. How much is the fair value of the interest rate swap on December 31, 20x1? (Indicate whether it is a derivative asset or liability.) a. 32,397 asset b. 32,397 liability c. 46,884 asset d. 53,223 liabilityConsider a 4-year 5% bond swap in euros for 1 million notional value. In other words, there will be three interest payments followed by a final payment of interest plus principal, all made in euros. Assume that the appropriate discount rate is 9% and the spot rate is 1.05 USD/EUR when answering the following questions related to possible swap contracts. a. What is the net present value of the payments described above (in euros)? b. If you want to offset the euro payments with a single USD payment at the end of year two, what is the appropriate amount? (This could be described as a bullet repayment.) c. Alternatively, if you want to offset the euro payments with four equal USD payments at the end of each year, what is the appropriate amount? (This could be described as an annuity repayment.) Show work