Question: Terms: Receive fixed rate every 6 months and pay 3ML for 2 years Use the market data provided below to construct a US$ interest-rate swap

Terms: Receive fixed rate every 6 months and pay 3ML for 2 years Use the market data provided below to construct a US$

Terms: Receive fixed rate every 6 months and pay 3ML for 2 years Use the market data provided below to construct a US$ interest-rate swap of $60 million in notional principal. Test questions: 1. What is the fixed rate you would quote to make $40,000 on the swap? 2. How would you recommend to hedge the swap? Prove the hedge effectiveness ICE LIBOR Tenor Overnight 1 Week 1 Month 2 Month 3 Month 6 Month 1 Year Publication Time October 9, 2018 11:55:04 AM 2.16550 11:55:04 AM 2.21500 11:55:04 AM 2.28713 11:55:04 AM 2.31400 11:55:04 AM 2.42044 11:55:04 AM 2.62900 11:55:04 AM 2.96200 Eurodollar Futures Settlements at September 6, 2018 Prior Day Estimated Open Month OpenHigh 18-Oct 18-Nov 18-Dec 19-Jan 19-Feb 19-Mar97.1350 97.1400 97.1250 97.1250-0.0050 97.1300 164,963 1,346,093 19-Jun 96.9550 96.9600 96.9500 96.95000.0050 96.9550 193,254 1,354,412 19-Sep96.8350 96.8450 96.8250 96.8350-0.0050 96.8350 205,247 1,318,867 19-Dec Low Last Change Settle Volume Interest 97.5675 97.5675 97.5575 97.5625 -0.0050 97.5625 38,199 229,839 974500 974500 974400 97 4450 0.0050 97.4450 32,776 236,844 97.3400 97.3400 97.3250 97.3250-0.0050 973300 277,123 1,723,812 97.2800 97.2800 97.2750 97.2750 0.0100 97.2750 97.2100 97.2100 97.2050A 97.2050A 2,235 30,979 5,626 0.0150 97.2000 256 96.7500 96.7600 96.7350 96.7450 UNCH 96.7100 96.7200 96.6950 96.7100 UNCH 96.7000 96.7150 96.6850 96.7000 UNCH 96.7500 334,924 2,048,834 96.7150140,364 1,005,880 96.7050 150,966 888,380 20-Jun 20-Sep96.7050 96.7150 96.6850 96.7050-0.0050 96.7050 164,360 956,834 20-Dec 21-Mar96.7200 96.7300 96.7000 96.7200 -0.0050 96.7200 81,394519,692 21-Jun96.7350 96.7450 96.7100 96.7350 -0.0050 96.7350 69,168 378,279 21-Sep 21-Dec 96.6950 96.7100 96.6800 96.7000 0.0050 96.7000 149,809 1,166,639 96.7450 96.7550 96.7200 96.7450 -0.0100 96.7400 68,485 230,845 96.7350 96.7500 96.7100 96.7400 0.0100 96.7350 53,069 372,745 Terms: Receive fixed rate every 6 months and pay 3ML for 2 years Use the market data provided below to construct a US$ interest-rate swap of $60 million in notional principal. Test questions: 1. What is the fixed rate you would quote to make $40,000 on the swap? 2. How would you recommend to hedge the swap? Prove the hedge effectiveness ICE LIBOR Tenor Overnight 1 Week 1 Month 2 Month 3 Month 6 Month 1 Year Publication Time October 9, 2018 11:55:04 AM 2.16550 11:55:04 AM 2.21500 11:55:04 AM 2.28713 11:55:04 AM 2.31400 11:55:04 AM 2.42044 11:55:04 AM 2.62900 11:55:04 AM 2.96200 Eurodollar Futures Settlements at September 6, 2018 Prior Day Estimated Open Month OpenHigh 18-Oct 18-Nov 18-Dec 19-Jan 19-Feb 19-Mar97.1350 97.1400 97.1250 97.1250-0.0050 97.1300 164,963 1,346,093 19-Jun 96.9550 96.9600 96.9500 96.95000.0050 96.9550 193,254 1,354,412 19-Sep96.8350 96.8450 96.8250 96.8350-0.0050 96.8350 205,247 1,318,867 19-Dec Low Last Change Settle Volume Interest 97.5675 97.5675 97.5575 97.5625 -0.0050 97.5625 38,199 229,839 974500 974500 974400 97 4450 0.0050 97.4450 32,776 236,844 97.3400 97.3400 97.3250 97.3250-0.0050 973300 277,123 1,723,812 97.2800 97.2800 97.2750 97.2750 0.0100 97.2750 97.2100 97.2100 97.2050A 97.2050A 2,235 30,979 5,626 0.0150 97.2000 256 96.7500 96.7600 96.7350 96.7450 UNCH 96.7100 96.7200 96.6950 96.7100 UNCH 96.7000 96.7150 96.6850 96.7000 UNCH 96.7500 334,924 2,048,834 96.7150140,364 1,005,880 96.7050 150,966 888,380 20-Jun 20-Sep96.7050 96.7150 96.6850 96.7050-0.0050 96.7050 164,360 956,834 20-Dec 21-Mar96.7200 96.7300 96.7000 96.7200 -0.0050 96.7200 81,394519,692 21-Jun96.7350 96.7450 96.7100 96.7350 -0.0050 96.7350 69,168 378,279 21-Sep 21-Dec 96.6950 96.7100 96.6800 96.7000 0.0050 96.7000 149,809 1,166,639 96.7450 96.7550 96.7200 96.7450 -0.0100 96.7400 68,485 230,845 96.7350 96.7500 96.7100 96.7400 0.0100 96.7350 53,069 372,745

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Stock Selection Case Study Markowitz won the Nobel Prize for his work in stock portfolio theory. He was the first to measure portfolio risk using the variance of returns. 1He introduced stock...

Hi. I need Chapter 11 part 1-4 Let me know. Thanks! (it wont letme add more than $8, but I will give $12+ tip) Personal Finance, Fifth Edition by Jeff Madura BUILDING YOUR OWN FINANCIAL PLAN WORKBOOK...

Pls answer the following guiding questions based on the case study in the picture Liability Management at General Motors 1. How has GM measured its exposure? How would you propose that GM measures...

1.Imperial Foods checkbook balance on December 31, Year 1 was $122,400. In addition, Imperial held the following items in its safe on December 31: (1) A check for $600 from Brewster, Inc., received...

Introduction Electricity generation has been closely linked to the economic development of Ghana since its independence from colonial rule. At the heart of this is the 1,020 MW Akosombo Dam, operated...

To determine the fixed rate on a swap, you would (Points : 1) use put-call parity price it as the issuance of a fixed rate bond and purchase of a floating rate bond or vice versa use the same fixed...

hi tutor4help. how are you ? i couldnt find our usual link form last weeks assignment to send this weeks assignment . the format is the same from professor, cut and paste and put formulas in cells...

I need Answers for Exercise 18-4B, 18-8B, 15-15B, 18-21 B and 18-26B from the attached document Kieso, Intermediate Accounting, 2014 FASB Update, Chapter 18 EXERCISES: Set B 3 5 E18-1B (Sales with...

The next six questions relate to the following case: The Westfield Machine Tool and Die Company (WMTC) is a US-based manufacturer of cutting tools that operates production plants in the United States...

Volume of Brillouin zone show that the volume of the first Brillouin zone is (2) 3 /V c , where V c is the volume of a crystal primitive cell. Recall the vector identity (e x a) x (a x b) = (e a x...

A thick spherical shell ,of inner radius a = 2 cm and outer radius b = 7 cm, is made of a linear dielectric material with a frozen polarization P = 10r. The total bound charge in the spherical shell...

Recall that t o find the cost t o produce the n t h unit i n a production process, w e calculate the difference C ( n ) - C ( n - 1 ) where C ( n ) i s the cost o f producing n units. The total cost...

Sean Higgins is considering the implementation of an incentive wage plan to increase productivity in his small manufacturing plant. The plant is nonunion, and employees have been compensated with...

Hook Corp. incurred the following start-up costs: Legal fees ........... 75,000 Accounting fees .......... 35,000 Promotional fees ......... 15,000 Staff training fees ....... 13,000 Prepare Hooks...

Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows: Cordova currently is limited to 40,000 labor hours per month....

Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows: Per Unit Sales price .............$37.50 Direct materials...

Notting Hill Company incurs the following costs for R&D activities: Material used from inventory ............... $15,000 Equipment purchased for R&D with no other use ....... 85,000 Depreciation on...

Question 9 Which part of the activity to be outsourced will guide you to what is required in the request for an outsourcing proposal? Select one: a . Risk assessment b . Selection criteria c . Data...

What forms of power seemed most evident among the founding team members? Explain.

Have you used any of the five techniques for generating creative alternatives? If yes, which ones?

Is following the steps in the decision-making model really all that important? Which steps of the model do you tend to follow? Which steps do you tend to not use? Will you use the model in your...