Question

An investor has the following information about a zero-coupon bond curve: Years to maturity 1 2 3 4 Spot rates 3.23% 3.65% 4.05% 4.30% The investor enters into a 4-year interest rate swap to pay a fixed rate and receive a floating rate based on future 1-year LIBOR rates. If the swap has annual payments, what is the fixed rate you should pay? Six months into the swap the term structure is now: Years to maturity 0.5 1.5 2.5 3.5 Spot rates 3.44% 3.92% 4.20% 4.50% What is the value of the swap at this time?

Answer #1

An investor enters into a PKR500,000 quarterly plain vanilla
interest rate SWAP as fixed rate payer at a fixed rate of 5%. The
floating rate payer agrees to pay 90-day LIBOR plus 1% margin, 90
day LIBOR is currently 3%.
90-day LIBOR rates are
3.5%
90 days from now
4.0%
180 days from now
4.5%
270 days from now
5%
360
days from now
Calculate the amounts investor pays or receives 90,180, 270 and
360 days from now

An investment company holds $10
million of a 5-year $100 million RST bond in its portfolio. The
bond pays interest on a fixed rate basis equal to 2.30%. Current
5-year treasury rates are 1.50% and the current 5-year swap spread
is 30 basis points.
a. To convert the bond payments to a
floating rate, the investor should enter into which type of swap
and what will be the investor’s net floating rate exposure quoted
as a spread to Libor? Be...

You have the following information on three zero coupon
bonds:
Bond 1: time to maturity: 1 year, face value = $1,000, bond
price = $971.58;
Bond 2: time to maturity: 2 years, face value = $1,000, bond
price = $925.47;
Bond 3: time to maturity: 3 years, face value = $1,000, bond
price = $858.96.
Part A: Calculate the one, two and three year spot rates.
Part B: Calculate the forward rate over the second year and the
forward rate...

The Term Structure
shows the following Spot Rates:
Maturity in years
1
2
3
4
5
spot rate in %
1.8
2.1
2.6
3.2
3.5
What is the implied 2-year forward rate two years from now? What
is the implied 3-year forward rate two years from now?

National Bank has a $200b of Adjustable Rate Mortgage (ARM) as
assets on its balance sheet. The interest rate on the ARM is
3%+Libor. As a result, the bank will receive floating interest. The
bank is considering hedging the risk in the interest income from
the assets with a three-year interest rate swap. What should be the
bank’s receipt and payment cash flows in the swap?
Select one:
a. The Bank should pay Libor and receive fixed interest
rate.
b....

A
bond trader buys a bond with 3% coupon rate and 2 years to maturity
at a yield to maturity of 2.5%. A year later, the trader sells the
bond at a yield to maturity of 4%. What is the trader’s total
return?

A bond with a 6% coupon rates makes annual coupon payments and
has 4 years until maturity. The appropriate spot-rate curve is:
Year Spot Rate
1 6%
2 5.90%
3 5.10%
4 4.80%
A) What is the price per 100
par?
B) What is the bond’s yield to
maturity?

Katie has borrowed 300,000 from Trout Bank. Katie will repay
100,000 of principal at the end of each of the first three
years.
Katie will pay Trout
Bank a variable interest rate equal to the one-year spot interest
rate at the beginning of each year.
Katie would like to
have a fixed interest rate so she enters into an interest rate swap
with Lily. Under the interest rate swap, Katie will pay a fixed
rate to Lily, and Lily will...

You are given the following yield curve (spot rates at different
maturities) Note : All rates are
semiannuallycompounded. The annual
coupon rate of a one-year bond is 6%. The coupons are paid
semiannually and the face value of the bond is $100. The price of
this bond is____________ (take three digits after the decimal
point). The forward rate at which one can lend or borrow money 0.5
year from today for a period of 0.5 year (0.5f0.5) is__________
%( take three...

Calculate the price of a 3.5 percent coupon bond, with 3.5 years
to maturity, and semi-annual payments. Zero-coupon spot (strip)
rates are as follows. YTM on a zero coupon security is a nominal
annual rate with semi-annual compounding.
Maturity YTM
6 months 1.20% per year
12 months 1.30%
18 months 1.40%
24 months 1.50%
30 months 1.50%
36 months 1.70%
42 months 1.90%
a. Calculate the price of this bond.
b. What is the yield to maturity of this coupon...

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