Question 1

A swap in which fund manager receives a floating rate in exchange for the payments on bonds the fund continues to hold is called _____________.

Question options:

	an alpha-porting swap
	an asset swap
	a deferred swap
	a future overlay swap

Question 3

Assume oat spot prices over the next 3 years are $2.20, $2.35, and $2.28, respectively. The original swap price was $2.30 per bushel. If cash settlement occurs, what transaction will the counter-party make in year 3 on a 5,000-bushel swap agreement?

Question options:

	$100 payment
	$100 receipt
	$250 payment
	$250 receipt

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Please use the following information for the next 3 questions. (HINT: Ch8_Swap Slides 6~12)

The zero-coupon bond yields are 4.0%, 4.5%, 5.0%, and 5.5% in years 1, 2, 3, and 4 respectively. Assume corn forward prices for the proceeding 4 years are $8.00, $8.50, and $9.35, and 9.50, respectively.

Question 4

Calculate the prepaid swap price for corn.

Question options:

	$25.20
	$35.35
	$33.04
	$31.22

Question 5

What is the 4-year swap price on corn?

Question options:

	8.75
	$8.52
	$8.80
	$9.02

Question 6

What is the market value of this 4-year swap at the time of the initiation?

Question options:

	$8.83
	$8.95
	$38.29
	$0
	$35.35

Question 7

Which of the following is NOT true?

Question options:

	A fund manager might own fixed-rate bonds and wish to have floating-rate exposure while continuing to own the bonds. A swap in which fund manager receives a floating rate in exchange for the payments on bonds the fund continues to hold is called an asset swap.
	Interest rate swaps permit firms to separate credit risk and interest rate risk.
	A swap is a contract calling for an exchange of payments, on one or more dates, determined by the difference in two prices.
	A set of swap rates at different maturities is called the swap tenor.

Question 8

Apple Inc. and Microsoft Inc. decide to swap $1 million loans. Apple Inc. currently pays 12.0% fixed and Microsoft Inc. pays 10.2% on a LIBOR + 0.8% loan. What is the net cash flow for Apple if they swap their fixed loan for a LIBOR + 0.8% loan and LIBOR rises to 11.2%? (Hint: The net swap payment is calculated as: Interest payment received from the swap transaction - the interest payment paid from the swap transaction. The interest payment is calculated as the notional swap principal here is $1 million x the interest rate.)

Question options:

	0
	-$18,000
	$18,000
	+$10,000
	-$10,000