The following information is available on a three-year swap contract. One-year maturity zero coupon discount yields are

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The following information is available on a three-year swap contract. One-year maturity zero coupon discount yields are currently priced at par and pay a coupon rate of 5 percent. Two-year maturity zero-coupon discount yields are currently 5.51 percent. Three-year maturity zero-coupon discount yields are currently 5.775 percent. The terms of a three-year swap of $100 million notional value are 5.45 percent annual fixed-rate payments in exchange for floating-rate payments tied to the annual discount yield.
a. If an insurance company buys this swap, what can you conclude about the interest rate risk exposure of the company's underlying cash position?
b. What are the realized cash flows expected over the three-year life of the swap?
c. What are the realized cash flows that occur over the three-year life of the swap if d2 = 4.95 percent and d3 = 6.1 percent? Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Related Book For  answer-question

Financial Institutions Management A Risk Management Approach

ISBN: 978-0071051590

8th edition

Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders

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