Suppose that a bank has agreed to the following terms of an interest rate swap: - The

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Suppose that a bank has agreed to the following terms of an interest rate swap: - The notional principal is CAD 300 million and the remaining life of the swap is 11 months. - The bank pays 8% per annum, and receives three-month LIBOR. - Payments are exchanged every three months. - The swap (fixed) rate is 11% per annum for all maturities. - The three-month LIBOR rate a month ago was 12.5% per annum. All rates are compounded quarterly. Estimate the value of the swap using a) a bond-price valuation method, and b) a FRAs-based method?

Posted Date: Oct 30, 2021 11:26 AM

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Suppose that a bank has agreed to the following terms of an interest rate swap: - The

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Solution Principal amount ie Cash available for distribution CAD 300 millions Swap life 11 months Sw... View the full answer

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