Question

A financial institution has entered into an interest rate swap with company X. Under the terms...

A financial institution has entered into an interest rate swap with company X. Under the terms of the swap, it receives 10% per annum and pays six-month LIBOR on a principal of $10 million for five years. Payments are made every six months. Suppose that company X defaults on the sixth payment date (end of year 3) when the interest rate (with semiannual compounding) is 8% per annum for all maturities. What is the loss to the financial institution? Assume that six-month LIBOR was 9% per annum halfway through year 3.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A financial institution has entered into an interest rate swap with company X. Under the terms...
A financial institution has entered into an interest rate swap with company X. Under the terms of the swap, it receives 10% per annum and pays six-month LIBOR on a principal of $10 million for five years. Payments are made every six months. Suppose that company X defaults on the sixth payment date (end of year 3) when the LIBOR/swap interest rate (with semiannual compounding) is 9% per annum for all maturities. What is the loss to the financial institution?...
A financial institution has entered into an interest rate swap with compony Y. Under the terms...
A financial institution has entered into an interest rate swap with compony Y. Under the terms of the swap, it receives 8% per annum and pays 6-month LIBOR on a principal of $10 million for 5 years. Payments are made every 6 months. Suppose that company Y defaults on the sixth payment date (at the end of year 3) when the interest is 5% per annum for all maturities. What is the loss to the financial institution?
Under the terms of an interest rate swap, a financial institution has agreed to pay 10%...
Under the terms of an interest rate swap, a financial institution has agreed to pay 10% per annum and to receive six-month LIBOR in return on a notional principal of $100 million with payments being exchanged every 6 months. The swap has a remaining life of 4 months. The average of the bid and offer fixed rates currently being swapped for 6-month LIBOR is 12% per annum for all maturities. The 6-month LIBOR rate two months ago was 11% per...
Company X has entered into a 7-year currency swap with company Y. Under the terms of...
Company X has entered into a 7-year currency swap with company Y. Under the terms of the swap, company X receives a fixed interest payment at 3.2% per annum in Euros and pays interest at 7% per annum in US dollars. Interest payments are exchanged once a year. The relevant principal amounts are 10 million dollars and 9 million Euros. Suppose that company Y declares bankruptcy at the end of year 4, when the exchange rate is $1.17 per euro....
Under the terms of an interest rate swap, a financial institution has agreed to pay 10%...
Under the terms of an interest rate swap, a financial institution has agreed to pay 10% per annum and to receive three-month LIBOR in return on a notional principal of $100 million with payments being exchanged every three months. The swap has a remaining life of 14 months. The average of the bid and offer fixed rates currently being swapped for three-month LIBOR is 12% per annum for all maturities. The three-month LIBOR rate one month ago was 11.8% per...
In an interest rate swap, a financial institution has agreed to pay 3.6% per annum and...
In an interest rate swap, a financial institution has agreed to pay 3.6% per annum and to receive three-month LIBOR in return on a notional principal of $100 million with payments being exchanged every three months. The swap has a remaining life of 14 months. Three- month forward LIBOR for all maturities is currently 4% per annum. The three-month LIBOR rate one month ago was 3.2% per annum. OIS rates for all maturities are currently 3.8% with continuous compounding. All...
In an interest rate swap, a financial institution has agreed to pay 3.6% per annum and...
In an interest rate swap, a financial institution has agreed to pay 3.6% per annum and to receive three-month LIBOR in return on a notional principal of $100 million with payments being exchanged every three months. The swap has a remaining life of 14 months. Three-month forward LIBOR for all maturities is currently 4% per annum. The three-month LIBOR rate one month ago was 3.2% per annum. OIS rates for all maturities are currently 3.8% with continuous compounding. All other...
Under the terms of an interest rate swap, a financial institution has agreed to pay 10%...
Under the terms of an interest rate swap, a financial institution has agreed to pay 10% per annum and receive three-month LIBOR in return on a notional principal of $100 million with payments being exchanged every three months. The swap has a remaining life of 11 months. Suppose the two-, five-, eight-, and eleven-month LIBORs are 11.5%, 11.75%, 12%, and 12.25%, respectively. The three-month LIBOR rate one month ago was 11.8% per annum. All rates are compounded quarterly. What is...
In an interest rate swap, ABC financial institution pays 6% per annum and receives three-month LIBOR...
In an interest rate swap, ABC financial institution pays 6% per annum and receives three-month LIBOR in return on a notional principal of GBP 100 million with payments being exchanged every three months. The swap has a remaining life of 14 months. The average of the bid and offer fixed rates currently being swapped for three- month LIBOR is 8% per annum for all maturities. The three-month LIBOR rate one month ago was 7.8% per annum. All rates are compounded...
Under the terms of an interest rate swap, a financial institution has agreed topay10%per annum and...
Under the terms of an interest rate swap, a financial institution has agreed topay10%per annum and receive three-month LIBOR in return on a notional principal of$100million with payments being exchanged every three months.The swap has a remaining life of 11 months. Suppose the two-, five-, eight-, and eleven-month LIBORs are 11.5%, 11.75%, 12%, and 12.25%, respectively. Thethree-month LIBOR rate one month ago was11:8%per annum. All rates are compounded quarterly. What is the value of the swap to the financial institution?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT