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You follow the equity index HSI using an index fund in Hong Kong. You have signed an interest rate swap to exchange the capital gains (losses) from your portfolio, against a sequence of cash flows based on 3-month Libor plus 25 bp. The cash flows are exchanged every 90 days. All cash payments occur in Hong Kong dollars. The notional principal is 1 million. a. Draw the cash flow diagram for the first year. b. Let It be the value of the index at time t. Suppose you have the following data: Io = 23,850 I₁ = 24,000 Lo = 4.5% What is the net amount exchanged at period 1? You follow the equity index HSI using an index fund in Hong Kong. You have signed an interest rate swap to exchange the capital gains (losses) from your portfolio, against a sequence of cash flows based on 3-month Libor plus 25 bp. The cash flows are exchanged every 90 days. All cash payments occur in Hong Kong dollars. The notional principal is 1 million. a. Draw the cash flow diagram for the first year. b. Let It be the value of the index at time t. Suppose you have the following data: Io = 23,850 I₁ = 24,000 Lo = 4.5% What is the net amount exchanged at period 1?
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Lets begin by addressing part a You will need to create a cash flow diagram to represent the payouts and inflows over the course of the first year for ... View the full answer
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