Ask Question
BusinessBusiness
12 January, 02:44

An interest rate swap has 3 years of remaining life. Payments are exchanged annually. Interest at 3% is paid and 12-month LIBOR is received. A exchange of payments has just taken place. The 1 year, 2 years and three years LIBOR/swap zero rates are 2%, 3% and 4%. All rates an annually compounded. What is the value of the swap as a percentage of the principal when LIBOR discounting is used?

+2
Answers (2)
  1. 12 January, 02:52
    0
    2.66% of the principal.

    Explanation:

    Suppose the principal 100.

    The value of the floating rate bond underlying the swap is 100.

    The value of the fixed rate bond is 3/1.02 + 3 / (1.03) ^2 + 103 / (1.04) ^3 = 97.34.

    The value of the swap is therefore 100-97.34 = 2.66 or 2.66% of the principal.
  2. 12 January, 03:10
    0
    Answer: 2.66%

    Explanation:

    Let the principal be 100. Then the value of the floating rate bond underlying the swap is 100. The value of the fixed rate bond is 3/1.02+3 / (1.03) 2+103 / (1.04) 3=97.34. The value of the swap is therefore 100-97.34 = 2.66 or 2.66% of the principal.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “An interest rate swap has 3 years of remaining life. Payments are exchanged annually. Interest at 3% is paid and 12-month LIBOR is ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
Supply curves tend to be Multiple Choice a. less elastic in the long run because there is time for firms to enter or leave an industry. b. perfectly inelastic in the long run because the law of scarcity imposes absolute limits on production. c.
Answers (1)
If the quantity demanded of a certain good responds only slightly to a change in the price of the good, it means that
Answers (1)
Gary smith is purchasing one living unit in a building. what type of housing is gary most likely going to live in
Answers (1)
IFRS accounting for impairments differs from GAAP in which of the following ways? (a) IFRS uses only a recoverability test in testing for impairment. (b) IFRS prohibits write-ups for recoveries of impairments for assets held for sale.
Answers (1)
Mark owns his own business and wants to make sure that his employees arrive on time each day and take breaks as specified.
Answers (1)
New Questions in Business
According to Debra, the vice president of Theo Chocolate, the most important marketing vehicle the company has is: a. the fair trade certification. b. free product giveaways. c. tours of its factories. d. the unique varieties of chocolates it offers.
Answers (1)
A country that exports less than it imports will end up having to borrow money True or False if false why?
Answers (1)
A client's condition has resulted in a decrease in work demands of most cells in the body. Which change within the cell will likely result from this decrease in work?
Answers (1)
At the scene of the crime, the evidence collector found a damp, bloody shirt. the evidence collector quickly wrapped the shirt in a paper bindle. he inserted the paper bindle with the shirt into an evidence bag.
Answers (1)
What may managers rely on to decide if they'd like to interview a candidate in person?
Answers (1)
Home » Business » An interest rate swap has 3 years of remaining life. Payments are exchanged annually. Interest at 3% is paid and 12-month LIBOR is received. A exchange of payments has just taken place.
Sign Up Forgot Password?