Over the next 3 years 1 year forward rates are expected to be: Year Forward Rates...

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Over the next 3 years 1 year forward rates are expected to be: Year Forward Rates 3.00% 9.00% 1 2 3 6.00% You want to enter into an interest rate Swap on a notional amount of $100M that amortizes over 3 years. With 50% of beginning notional getting repaid at the end of Year 1, 25% getting repaid at the end of year 2 and the balance repaid at the end of year 3. What would you expect a fair Fixed Rate on the Swap to be? Over the next 3 years 1 year forward rates are expected to be: Year Forward Rates 3.00% 9.00% 1 2 3 6.00% You want to enter into an interest rate Swap on a notional amount of $100M that amortizes over 3 years. With 50% of beginning notional getting repaid at the end of Year 1, 25% getting repaid at the end of year 2 and the balance repaid at the end of year 3. What would you expect a fair Fixed Rate on the Swap to be?

Answer rating: 100% (QA)

SOLUTION To determine the fair fixed rate on the swap we need to calculate the present value of the fixed and floating payments of the swap and set th... View the full answer