Please try the question: You are a bank. Your client wants to buy a fixed rate from
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Question:
Please try the question:
You are a bank. Your client wants to buy a fixed rate from you in exchange for 3 months LIBOR on a notional principal of $100 million for a period of one year. The LIBOR rates (with continuous compounding) today are: 3-month LIBOR = 9%, 6-month LIBOR = 10%, 9-month LIBOR = 11% and 12-month LIBOR = 12%
a. Why should you enter into a SWAP with client?
b. What is the Swap fixed rate you should charge your client? Describe the method and show all calculations.
c. Would you add any premium? Explain why?
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