Suppose the 1-year and 2-year OIS rates are 2% and 4%, respectively. Consider an OIS swap with two years to maturity where you receive 3% and pay the floating reference rate with principal 1 million. If the payments are made annually with annual compounding the value of the swap is (a)−558.4 (b)−188.5 (c) 0 (d) 188.5 (e) 558.4
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Suppose the 1-year and 2-year OIS rates are 2% and 4%, respectively. Consider an OIS swap with two years to maturity where you receive 3% and pay the floating reference rate with principal 1 million. If the payments are made annually with annual compounding the value of the swap is (a)−558.4 (b)−188.5 (c) 0 (d) 188.5 (e) 558.4
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- Define the stated (quoted) or nominal rate INOM as well as the periodic rate IPER. Will the future value be larger or smaller if we compound an initial amount more often than annually—for example, every 6 months, or semiannually—holding the stated interest rate constant? Why? What is the future value of $100 after 5 years under 12% annual compounding? Semiannual compounding? Quarterly compounding? Monthly compounding? Daily compounding? What is the effective annual rate (EAR or EFF%)? What is the EFF% for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?Let's imagine that the OIS rates for one year and two years are 2% and 4% respectively. Now, let's examine an OIS swap set to mature in two years, where you receive a fixed rate of 3% and pay the floating reference rate. The principal amount involved is 1 million. If payments are made annually with annual compounding, what is the value of the swap? (a)−558.4 (b) −188.5 (c) 0 (d)188.5 (e) 558.4Suppose 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 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.Consider 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 paymentIf you are the floating-rate payer in an interest rate swap, paying LIBOR + 40bp with a notional value of $1,000,000 and LIBOR turns out to be 0.72%, 0.83%, 0.91% and 1.03% at the four annual payment dates, what are your dollar payment obligations at those dates?
- 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 that a commodity’s respective forward prices for 1 year and 2 years are $150 and $158. The 1-year effective annual interest rate is 5.9%, and the 2-year interest rate is 6.6%. You will pay a fixed rate of $153.85906 in a 2-year swap and receive the floating rate. At the time you enter the swap contract, its value to you is... A.$0.0084 B.$–0.0084 C.$0.0051 D.. $–0.0051 E.$000000Suppose you have a 2.5-year remaining on an interest rate swap with a notionalprincipal of $10, 000, 000 between Company A and Company B. Company A pays fixed rateand Company B pays the float rate. Fixed and float payments are exchanged every year andthe last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and thefloating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago,is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is3.50%.Calculate the present value of the fixed and floating legs of the swap, and determine the swap’snet present value from Company A’s perspective. Assume annual compounding for discounting.
- 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?A $100,000 interest rate swap has a remaining life of 10 months. Under the terms of the swap, six-month LIBOR is exchanged for 4% per annum (compounded semi-annually). Six-month LIBOR forward rates for all maturities are 3.3% (compounded semi-annually). The six-month LIBOR rate was 2.6% two months ago. The risk free rate is 2.7% (cont. comp) for all maturities. What is the value of the swap to the party paying floating? (Required precision: 0.01 +/- 1)Your firm has semi-annual floating rate payment obligations for the next two years computed on a nominal value of $10M. You observe the following LIBOR spot rates: 6 months = 1.5%, 12 months = 2%, 18 months =2.2%, 24 months=2.5%. Find the swap fixed rate. How would you use the swap in order to hedge your position (floating rate payment obligations)?
