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 What is the fixed rate determined on the swap initiation date?
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 What is the fixed rate determined on the swap initiation date?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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D&R A3
1-1
Question 1. Plain Vanilla Interest Rate Swap
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 |
- What is the fixed rate determined on the swap initiation date?
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