Consider a 3-year swap initiated on May 5, 2016, between company A and company B. Suppose...
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Consider a 3-year swap initiated on May 5, 2016, between company A and company B. Suppose company A agrees to pay company B an interest rate of 6% per annum (with semi-annual compounding) on a principal of $150 million, and in return company B agrees to pay company A the 6-month LIBOR rate on the same principal. Assume that the payments are to be exchanged every 6 months. Suppose that the day count convention is ignored; and that there is no financial intermediary. Assume that the values of the following set of 6-month LIBOR (with semi-annual compounding) are known. May. 5, 2016 Nov. 5, 2016 5.2% 5.8% Calculate the floating, fixed and net cash flow to company A in this interest rate swap. (15%) May. 5, 2017 Nov. 5, 2017 6.3% 6.5% May. 5, 2018 | Nov. 5, 2018 6.6% 6.9% Consider a 3-year swap initiated on May 5, 2016, between company A and company B. Suppose company A agrees to pay company B an interest rate of 6% per annum (with semi-annual compounding) on a principal of $150 million, and in return company B agrees to pay company A the 6-month LIBOR rate on the same principal. Assume that the payments are to be exchanged every 6 months. Suppose that the day count convention is ignored; and that there is no financial intermediary. Assume that the values of the following set of 6-month LIBOR (with semi-annual compounding) are known. May. 5, 2016 Nov. 5, 2016 5.2% 5.8% Calculate the floating, fixed and net cash flow to company A in this interest rate swap. (15%) May. 5, 2017 Nov. 5, 2017 6.3% 6.5% May. 5, 2018 | Nov. 5, 2018 6.6% 6.9%
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In the given case Company A pays Fix amount of interest and receives floating interest rate the detailed calculation is shown as follows As on May 520... View the full answer
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