You are given the following data on Libor yields at six monthly intervals. The current date is
Question:
You are given the following data on Libor yields at six monthly intervals.
The current date is 19-May-04. All swaps in this question have a four-year maturity and a notional principal of 100,000. Assume the fixed-rate side of the swap is on a 30/360 basis, and the floating side is on an Actual/360 basis. The zero-coupon yields above may be converted into discount factors using the following formula:
Where z is the zero-coupon rate and D is the number of days to the payment from inception.
(a) Find the price of a fixed-for-floating interest-rate swap that pays Libor on the floating leg.
(b) Find the price of a fixed-for-floating interest-rate swap that pays Libor + 25 bps on the floating leg. The notional principal is 100,000.
(c) Find the price of a zero-coupon swap against floating Libor.
(d) If the fixed rate on the swap is 3%, what is the spread over Libor on the floating leg to make this a fair swap?
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a In the case where the floating leg pays Libor its value must be exactly 100 Then we can find the p...View the full answer
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