Please (strictly )dn't use CHATGPT.Please type the answer with good explanation.Thank You The floating leg of
Question:
Please (strictly )dn't use CHATGPT.Please type the answer with good explanation.Thank You
The floating leg of an interest rate swap is a floating rate agreement without the par.
Consider the following floating rate agreement that lasts for 3 years.
Today is Nov 1 2022. At the end of each year(i.e., Nov 1 2023, 2024, 2025), the agreement pays the prevailing interest rate on a principle of $100m. The principle will be paid at the end of year 3. The interest rate for the coming year has been observed today, and it is 3% (this will be paid on Nov 1 2023). The interest rates for the next two years will be observed at the end of year 1 and 2.
1) What is the present value of the floating rate agreement today?
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2) Suppose the 6-month discount rate turns out to be 4%(APR) on May 1 2023.
What is the present value of the FRA on that day?
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Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson