A portfolio manager buys a swaption with a strike rate of (6.5 %) that entitles the portfolio

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A portfolio manager buys a swaption with a strike rate of $6.5 \%$ that entitles the portfolio manager to enter into an interest ate swap to pay a fixed rate and receive a floating rate. The term of the swaption is five years.

a. Is this swaption a payer swaption or a receiver swaption? Explain why.

b. What does the strike rate of $6.5 \%$ mean?

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Foundations Of Financial Markets And Institutions

ISBN: 9780136135319

4th Edition

Authors: Frank J Fabozzi, Franco G Modigliani, Frank J Jones

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Question Posted: Mar 02, 2024 05:01 AM

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A portfolio manager buys a swaption with a strike rate of (6.5 %) that entitles the portfolio

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Foundations Of Financial Markets And Institutions

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