Question: The Libor term Structure today is 30 days at 3% 60 days at 3.2% 90 days at 2.5% 120 days at 3% Our firm is

The Libor term Structure today is

30 days at 3%

60 days at 3.2%

90 days at 2.5%

120 days at 3%

Our firm is interested in locking an interest rate today so that we could borrow $1,000,000 60 days today, and repay the loan 120 days from today.

A. Describe a set of LIBOR transactions today that will replicate the desired payoffs of borrowing $1,000,000 in 60 days, paying back the $1,000,000 plus interest in 120 days. (Replicate the Cash flows with available assets. You do not know the payoff amount to start)

B. What forward interest rate did your transactions lock in for the firm?

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