Question

8) Carlton, an AAA rated corporate, enters an interest rate swap on $1,000,000, paying Libor and receiving a fixed rate of 2.56% annually. The swap is going to last for 4 years. Currently the 4-year Libor is 2.59% on dollars. One year later, Carlton decides to unwind the swap. What is the NPV of the swap if the three-year interest rate(Libor) is 3.02% now? Who pays whom?

Select one:

a. -$13,006.61; Carlton pays dealer

b. $855; Dealer pays Carlton

c. $13,006.61; Dealer pays Carlton

d. -$13,006.61; Dealer pays Carlton

e. -$855; Carlton pays dealer

9) The interest rate for Swiss Franc is i_SF=12% and for Japanese yen is i_¥=10%. The expected inflation rate in Switzerland for the next year is 5%. According to the International Fisher Effect, the expected inflation rate and real interest rate in Japan for next year are respectively,

Select one:

a. 3.5% and 7.0%

b. 2.1% and 4.1%

c. 2.0% and 5.0%

d. 7.0% and 7.0%

e. 3.1% and 6.7%

Answer 1