Consider a 1-year semi-annually paid interest rate swap, the notional is £1,000,000, the swap rate is 3.0%, the floating rate is GM LIBOR + 1%. On the market, the 6M LIBOR spot and its 6-month maturity forward are 3.0% and 1.0%, respectively. Sketch the cash-flow diagram of the fixed-leg.
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Consider a 1-year semi-annually paid interest rate swap, the notional is £1,000,000, the swap rate is 3.0%, the floating rate is GM LIBOR + 1%. On the market, the 6M LIBOR spot and its 6-month maturity forward are 3.0% and 1.0%, respectively. Sketch the cash-flow diagram of the fixed-leg.
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- Consider a $15 million interest-rate swap in which cash flows based on a fixed rate of 5% (with semi-annual compounding) are exchanged for 6-month LIBOR. The swap has a remaining life of 9 months. The 6-month LIBOR that was observed three months ago was 4.85% (with semi-annual compounding). The forward LIBOR for the period between 3 months and 9 months (from today) is 6.14% (with semi-annual compounding). The risk-free rates for 3 months and 9 months are 5.3% and 5.8%, respectively, with continuous compounding. Calculate the value of the swap to the party receiving the fixed rate.Suppose 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?Assume oat forward prices over the next 3 years are $2.30, $2.40, and $2.33, respectively. Effective annual interest rates over the same period are 5.5%, 5.8%, and 6.1%. What is the 3-year swap price if the delivery in year 1 is 100,000 bushels, the delivery in year 2 is 125,000 bushels and the delivery in year 3 is 175,000 bushels?
- Suppose you borrow RM10,000,000 in the interbank money market at a KLIBOR yield of 6% p.a for a term of 1 month. Should you buy or sell KLIBOR futures contract if you were to hedge against interest rate risks?Suppose we are pricing a five-year Libor-based interest rate swap with annual resets (30/360 day count). The estimated present value factors are given below: Maturity(years) Present ValueFactors1 0.9900992 0.9778763 0.9651364 0.9515295 0.937467 What is the fixed rate of the swap? Answer in 4 decimal placesSuppose the 1-year and 2-year OIS rates are 2% and 4%, respectively. Consider an OISswap with two years to maturity where you receive 3% and pay the floating reference ratewith principal 1 million. If the payments are made annually with annual compounding, what is the value of the swap
- Suppose you borrow RM10,000,000 in the interbank money market at a KLIBOR yield of 6% p.a for aterm of 1 month. Should you buy or sell KLIBOR futures contract if you were to hedge against interest rate risks?Suppose the three-year swap rate for a swap with annual payments is 3.2% and that OIS (risk-free) zero rates for maturities of one, two and three years are 2.5%, 2.7% and 2.9% respectively. What is the value of a three-year swap where 4% is received and TSOFR is paid on a principal of $100 million? All rates are annually compounded.Let’s say we have a situation where all 12-month LIBOR forward rates at 8% per annum with annual compounding. All cap volatilities are 16%. Estimate the difference between the way a sophisticated trader and an unsophisticated trader would value a LIBOR-in-arrears swap where payments are made annually and the life of the swap is 5 years and 10 years. Also, assume a notional principal of $1 million and no difference between the risk-free discount rate and LIBOR rates.
- 1. Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%. a) Compute for the profit for the transaction? b) What is the theoretical (or equilibrium) futures price? c) What action would you take if the futures price is $837 d) What action would you take if the futures price is $76? SHOW SOLUTIONS PLEASE DONT USE MSEXCELSuppose you borrow $10,000,000 in the interbank money market at a KLIBOR yield of 6% pa for a term of 1 month.Should you buy or sell a KLIBOR futures contract if you were to hedge against interest rate risks? explainSuppose you borrow RM10,000,000 in the interbank money market at a KLIBOR yield of 6% p.a for aterm of 1 month. How many KLIBOR futures contracts should you buy or sell if you were to hedge against interest rate risks?