Question: Maturity Bid (%) Offer (%) Swap Rate (%) 2 years 5.03 5.08 5.055 3 years 5.22 5.26 5.24 4 years 5.35 5.41 5.38 5 years
| Maturity | Bid (%) | Offer (%) | Swap Rate (%) |
| 2 years | 5.03 | 5.08 | 5.055 |
| 3 years | 5.22 | 5.26 | 5.24 |
| 4 years | 5.35 | 5.41 | 5.38 |
| 5 years | 5.47 | 5.52 | 5.495 |
| 7 years | 5.65 | 5.69 | 5.67 |
| 10 years | 5.83 | 5.89 | 5.86 |
The table above shows the interest rate swap rates quoted by JP Morgan today. Answer the following questions using data from the table above. Technical note: Text Boxes and Arrows from Insert menu in Word can be used to build your answer below.
- Chrysler recently invested $100 million for 4 years. Chrysler receives (LIBOR + 0.75%) interest per annum from investment. Because Chryslers treasurer believes that the rates would go down over this period, she decides to enter a swap with JP Morgan to transform this floating rate investment into a fixed rate investment.
Design an interest rate swap between Chrysler and JP Morgan. Show the payments to Chrysler from investment and payments under the swap in the diagram indicating the flow of payments by arrows and interest rates exchanged. Also indicate the notional amount of the swap. (12 pts).
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
Study Help