Explain why an Interest Rate Swap (assume LIBOR as the floating rate) with quarterly settlement (assume...
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Explain why an Interest Rate Swap (assume LIBOR as the floating rate) with quarterly settlement (assume 90 days per quarter) can be viewed as a strip of Eurodollar futures contracts. (Note: A strip is a sequence of ED futures with successive expirations) (10 marks) The following table gives the bid and offer fixed rates in the swap market and the corresponding swap rates Maturity (years) Bid (%) Offer (%) Swap Rate (%) 5.03 5.06 5.045 4 5.35 5.39 5.370 7 5.65 5.68 5.665 10 5.83 5.87 5.850 Suppose that Company X can invest for 4 years at 4.5%. Recommend a floating rate, can it swap this fixed rate into? (i) (ii) Company Y can invest for 10 years at LIBOR minus 50 basis points. Recommend a fixed rate, can it swap this floating rate into? 2. Explain why an Interest Rate Swap (assume LIBOR as the floating rate) with quarterly settlement (assume 90 days per quarter) can be viewed as a strip of Eurodollar futures contracts. (Note: A strip is a sequence of ED futures with successive expirations) (10 marks) The following table gives the bid and offer fixed rates in the swap market and the corresponding swap rates Maturity (years) Bid (%) Offer (%) Swap Rate (%) 5.03 5.06 5.045 4 5.35 5.39 5.370 7 5.65 5.68 5.665 10 5.83 5.87 5.850 Suppose that Company X can invest for 4 years at 4.5%. Recommend a floating rate, can it swap this fixed rate into? (i) (ii) Company Y can invest for 10 years at LIBOR minus 50 basis points. Recommend a fixed rate, can it swap this floating rate into? 2.
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Related Book For
Investment Analysis and Portfolio Management
ISBN: 978-0538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown
Posted Date:
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