4. Using the bond approach, determine the value of a plain vanilla interest rate swap to...

 

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4. Using the bond approach, determine the value of a plain vanilla interest rate swap to Company A. Assume that the swap has 3.5 years to go before termination and that it pays out on an annual basis. The notional value of the swap is $100 million and company A has agreed to pay 3% (based on annual compounding) to company B. Assume the yield curve is flat and equal to 5% (based on continuous compounding) and that the simple annual LIBOR rate at the last reset date was equal to 4.5%. 4. Using the bond approach, determine the value of a plain vanilla interest rate swap to Company A. Assume that the swap has 3.5 years to go before termination and that it pays out on an annual basis. The notional value of the swap is $100 million and company A has agreed to pay 3% (based on annual compounding) to company B. Assume the yield curve is flat and equal to 5% (based on continuous compounding) and that the simple annual LIBOR rate at the last reset date was equal to 4.5%.

Answer rating: 100% (QA)

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