XYZ industries has a 3-year loan of $10,000. They will pay off the interest due at the
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XYZ industries has a 3-year loan of $10,000. They will pay off the interest due at the end of each year and the final $10,000 at the end of the 3rd year. The interest rate on the loan is a floating rate that will be reset annually to the one-year spot interest rate at the beginning of the year. XYZ enters into an interest rate swap so that they pay a fixed rate instead of a variable rate. Given the spot rates below calculate the swap rate R for this interest rate swap.
Time (t) | Spot Rate (rt) |
1 | 3.6% |
2 | 4.1% |
3 | 5.7% |
Related Book For
Finite Mathematics and Its Applications
ISBN: 978-0134768632
12th edition
Authors: Larry J. Goldstein, David I. Schneider, Martha J. Siegel, Steven Hair
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