Company Z enters into a 5-year interest rate swap contract on 1 January 2015 as the fixed-rate payer party. The settlement period is one year. The settlement dates are 31 December of each year from 2015 to 2019. The spot rates of interest at the beginning of various years for investment horizons of t = 1,2,3, 4 and 5 years are given in the following table. t 1 Jan 2015 1 Jan 2016 1 Jan 2017 1 Jan 2018 1 Jan 2019 0.35% 0.71% 1.43% 2.05% 0.79% 0.42% 0.34% 0.47% 0.95% 0.31% 0.38% 0.57% 1.08% 1.58% 1 1.24% 1.72% 2.59% 3.24% 0.64% 1.05% 3 1.78% 2.31% 4 2.94% 3.55% 1.47% (a) Assuming a level notional amount of $1 million for the contract, determine the swap rate. (b) Suppose the contract is an accreting swap with notional amounts of $1 million, $3 million, $5 million, $7 million and $9 million. Determine the swap rate.

Company Z enters into a 5-year interest rate swap contract on 1 January 2015 as the fixed-rate payer party. The settlement period is one year. The settlement dates are 31 December of each year from 2015 to 2019. The spot rates of interest at the beginning of various years for investment horizons of t = 1,2,3, 4 and 5 years are given in the following table. t 1 Jan 2015 1 Jan 2016 1 Jan 2017 1 Jan 2018 1 Jan 2019 0.35% 0.71% 1.43% 2.05% 0.79% 0.42% 0.34% 0.47% 0.95% 0.31% 0.38% 0.57% 1.08% 1.58% 1 1.24% 1.72% 2.59% 3.24% 0.64% 1.05% 3 1.78% 2.31% 4 2.94% 3.55% 1.47% (a) Assuming a level notional amount of $1 million for the contract, determine the swap rate. (b) Suppose the contract is an accreting swap with notional amounts of $1 million, $3 million, $5 million, $7 million and $9 million. Determine the swap rate.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter13: Marketable Securities And Derivatives

Section: Chapter Questions

Problem 30P

See similar textbooks

Similar questions

On December 31, 2021, Ainsley Company finished consultation services and accepted exchange a zero interest bearing of $ 995,000 and a due date of December 31, 2024. The implied interest rate is 12%. The following interest factors are provided Table Factors For Three Periods Future Value of 1 Present Value of 1 Future Value of Ordinary Annuity of 1 Present Value of Ordinary Annuity of 1 Interest Rate 6% 12% 1.19102 1.40493 0.83962 0.71178 3.18360 3.37440 2.67301 2.40183 Instructions (a) Determine the present value of the note. (b) Prepare the journal entries for the initial transaction , recognition of Interest each year, and the colle Instructions: Compute both a must show your work
CMOS Chips is hedging a 20-year, $10 million, 7% bond payable with a 20-year interest rate swap and has designated the swap as a fair value hedge. The agreement called for CMOS to receive payment based on a 7% fixed interest rate on a notional amount of $10 million and to pay interest based on a floating interest rate tied to LIBOR. The contract calls for cash settlement of the net interest amount on December 31 of each year. At December 31, 2016, the fair value of the derivative and of the hedged bonds has increased by $100,000 because interest rates declined during the reporting period. Required: 1. Does CMOS have an unrealized gain or loss on the derivative for the period? On the bonds? Will earnings increase or decrease due to the hedging arrangement? Why? 2. Suppose interest rates increased, rather than decreased, causing the fair value of both the derivative and of the hedged bonds to decrease by $100,000. Would CMOS have an unrealized gain or loss on the derivative for the…
On March 2021, Company A enters a forward rate agreement(FRA) with company B to borrow $1 million at 4% between October 2021 and December 2021(three months). The term structure of interest rates is flat at 5%. The value of the FRA contract for Company A is
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
A 2-year swap based on LIBOR is entered into on 30/6/2010 with current spot 3 month LIBOR at 0.54%. The swap is based on a notional principal of $100m What is the swap rate?
On January 1, 2024, Avalanche Corporation borrowed $122,000 from First Bank by issuing a two-year, 8% fixed-rate note with annual interest payments. The principal of the note is due on December 31, 2025. Avalanche wanted to hedge against declines in general interest rates, so it also entered into a two-year SOFR-based interest rate swap agreement on January 1, 2024, and designates it as a fair value hedge. Because the swap is entered at market rates, the fair value of the swap is zero at inception. The agreement called for the company to receive fixed interest at the current SOFR swap rate of 5% and pay floating interest tied to SOFR. This arrangement results in an effective variable rate on the note of SOFR + 3%. The contract specifies that the floating rate resets each year on June 30 and December 31 for the net settlement that is due the following period. In other words, the net cash settlement is calculated using beginning- of-period rates. The SOFR rates on the swap reset dates…
On July 10, 2012, you purchase a $10,000 par T-note that matures in five years. The settlement occurs on July 11, 2019. The coupon rate is 8 percent and the current price quote is 96.0388 percent. The last coupon payment was on 14 days before settlement, and the next coupon payment will be paid on 169 days from settlement. Calculate the accrued interest due to the seller from the buyer at settlement.
On July 10, 2012, you purchase a $10,000 par T-note that matures in five years. The settlement occurs on July 11, 2019. The coupon rate is 7 percent and the current price quote is 95.1964 percent. The last coupon payment was on 12 days before settlement, and the next coupon payment will be paid on 156 days from settlement. Calculate the accrued interest due to the seller from the buyer at settlement ( round your answer to decimal places)
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to sell 100,000 rubles in four months (on January 31, 2018) and receive $39,000 in U.S. dollars. Exchange rates for the ruble follow: Date Spot rate Forward Rate (to January 31,2018) October 1, 2017 $0.35 $0.39 December 31, 2017 0.38 0.41 January 31, 2018 0.40 N/A Sharp’s incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Sharp must close its books and prepare financial statements on December 31.a. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a 100,000 ruble receivable arising from a sale made on October 1, 2017. Include entries for both the sale and the forward contract.b. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a firm commitment related to a 100,000…
On January 1, 2021, Saltimbocca Corporation borrowed $192,772 from Morgan Stanley. Under the terms of the loan, Saltimbocca will pay $500,000 to Morgan Stanley in ten years (on December 31, 2030), which implies that the yield to maturity (or implicit interest rate) on the loan is 10.0%. What is Saltimbocca’s interest expense on the loan for the year ended December 31, 2023 (the third year of the loan)? (Hint: Round to the nearest dollar. Do not use any dollar signs, commas, or decimals in your answer).
On January 2, 2020, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note. As a result, on January 2, 2020, MacCloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $100,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.7% on June 30, 2020. Instructions a. Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2020. b. Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2020.
Consider a one-year interest rate swap with semi-annual payments, based on 30/360 day count convention. The term structure of LIBOR spot rates is given as follows: 6-month LIBOR at 7.2%, and 12-month LIBOR at 8.0%. What is the annualized fixed rate on the swap? A. 7.42%. B. 7.93% C. 7.84%. D. 7.56%.