3. Interest Rate Swap: (a) Using the same spot rate curve as in question 2 above, construct an Excel spreadsheet to calculate the at-the-money Swap Rate of a fixed-for-floating interest rate swap with the following inputs: - Trade Date - Swap Notional (for eg. 10 million) - Coupon Frequency (semi-annual or annual) - Maturity (1 year to 10 years) 3 /Turn over 980N1 Financial Instruments You may price the swap as a strip of Forward Rate Agreements (FRAs) as discussed during the lecture and as described in the additional learning material. (b) Suppose that the interest rate curve shifts down by 10 basis points (bps), subsequent to the inception of the interest rate swap: i. What is the new mark-to-market value of the swap from the perspective of the fixed-rate payer? ii. What is the new mark-to-market value of the swap from the perspective of the fixed-rate receiver? Notes: You will have to construct the forward rate curve from the spot rate curve for the above exercise. Feel free to use the Excel spread-sheet from Seminar 7 for that. Hint: One should be able to change the input parameters in your spread-sheet and it should automatically calculate the swap rate for those parameters. [max words 500; 25 marks, 15 marks for part (a) and 10 for part (b)] 3. Interest Rate Swap: (a) Using the same spot rate curve as in question 2 above, construct an Excel spreadsheet to calculate the at-the-money Swap Rate of a fixed-for-floating interest rate swap with the following inputs: - Trade Date - Swap Notional (for eg. 10 million) - Coupon Frequency (semi-annual or annual) - Maturity (1 year to 10 years) 3 /Turn over 980N1 Financial Instruments You may price the swap as a strip of Forward Rate Agreements (FRAs) as discussed during the lecture and as described in the additional learning material. (b) Suppose that the interest rate curve shifts down by 10 basis points (bps), subsequent to the inception of the interest rate swap: i. What is the new mark-to-market value of the swap from the perspective of the fixed-rate payer? ii. What is the new mark-to-market value of the swap from the perspective of the fixed-rate receiver? Notes: You will have to construct the forward rate curve from the spot rate curve for the above exercise. Feel free to use the Excel spread-sheet from Seminar 7 for that. Hint: One should be able to change the input parameters in your spread-sheet and it should automatically calculate the swap rate for those parameters. [max words 500; 25 marks, 15 marks for part (a) and 10 for part (b)]