Under the terms of an interest rate swap, PDX Corp has agreed to receive 12% per annum
Fantastic news! We've Found the answer you've been seeking!
Question:
- Under the terms of an interest rate swap, PDX Corp has agreed to receive 12% per annum and to pay six-month LIBOR in return on a notional principal of $190 million with payments being exchanged every six months. The swap has a remaining life of 14 months. The six-month LIBOR yield curve is downward sloping and rates for next payment dates are 14%, 16%, and 12% per annum with continuous compounding. The six-month LIBOR at the last payment date was 11.5% per annum.
(9 points)
(a) What is the value of the fixed-rate bond?
- What is the value of the floating-rate bond?
- What is the value of the swap to PDX’s counterparty?
- Under the terms of an interest rate swap, PDX Corp has agreed to receive 12% per annum and to pay six-month LIBOR in return on a notional principal of $190 million with payments being exchanged every six months. The swap has a remaining life of 14 months. The six-month LIBOR yield curve is downward sloping and rates for next payment dates are 14%, 16%, and 12% per annum with continuous compounding. The six-month LIBOR at the last payment date was 11.5% per annum.
(9 points)
(a) What is the value of the fixed-rate bond?
- What is the value of the floating-rate bond?
- What is the value of the swap to PDX’s counterparty?
Related Book For
Bank Management and Financial Services
ISBN: 978-0078034671
9th edition
Authors: Peter Rose, Sylvia Hudgins
Posted Date: