Sam takes a loan of 500000 for 3 years. Interest only is to be paid at the
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Sam takes a loan of 500000 for 3 years. Interest only is to be paid at the end of years 1 and 2 and at the end of year 3 the principal is repaid as well as the interest for that year. Year 1 rate is 5%, Year 2 rate is unknown and year 3 rate is unknown. But spot rates are known to be 5% for 1 year, 7% for 2 years and 7% for 3 years. Sam wants to pay a fixed rate at the end of each year. A financial company will set this up for Sam and Sam will pay a fixed swap rate R each year. Find R.
Related Book For
Financial Management Principles and Applications
ISBN: 978-0134417219
13th edition
Authors: Sheridan Titman, Arthur J. Keown, John H. Martin
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