Assume you are a TD bank. Your client contacts you to enter a SWAP where the client
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Question:
Assume you are a TD bank. Your client contacts you to enter a SWAP where the client receives a fixed rate from you in exchange for 3-month LIBOR on a notional principal of $100 million for a period of one-year. The 3-month, 6-month, 9-month and 12-month LIBOR rates (with continuous compounding) are 9%, 10%, 11%, and 12% respectively.
a. What Swap fixed rate should you charge the client? Explain and show all the calculations
b. One day after the contract is signed, Bank of Canada cuts interest rates by 100 basis points. Calculate the value of the SWAP contract to you and the client?
Related Book For
Advanced Accounting
ISBN: 978-1934319307
2nd edition
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III
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