Accounts Answers
Autor: aklank21 • April 13, 2016 • Coursework • 734 Words (3 Pages) • 689 Views
Answer 1
i) Fixed bond = $100*0.06/2 = $3million
Value of fixed rate bond = 3e-0.05*3/12 + 3e-0.05*9/12 + 103e-0.05*15/12
= $102.61million
ii) Floating bond = 0.07/2*$100 million + $100million
= $103.5million
Value of floating rate bond = $103.5e-0.07*3/12
= $101.70million
iii) Value of payment = (Notional principal) (Fixed rate %u2013 LIBOR) (Days/360)
= ($100million) (0.06 %u2013 0.07) (90/360)
= $0.25million.
iv) Value of payment = (Notional principal) (Fixed rate %u2013 LIBOR) (Days/360)
= ($100million) (0.06 %u2013 0.07) (270/360)
= $0.75million.
v) Value of payment = (Notional principal) (Fixed rate %u2013 LIBOR) (Days/360)
= ($100million) (0.06 %u2013 0.07) (450/360)
= $1.25million.
vi) Value of swap = Value of fixed bond %u2013 Value of floating bond
= $102.61million - $101.70million
= $0.91million
Answer 2
The fixed rate of interest can the company earn 2.7%
When the company invests at LIBOR minus 0.3% and then enters into a swap where it pays LIBOR and receives 3% it earns 2.7% per annum. Note that it is the bid rate that will apply to the swap.
Answer 3
The estimate is 100 x 0.2 x 1/52 = $2.77
Answer 4
- 1 x (10,000,000/100 x 500) = 200 contracts
- 9,500,000/ 100 x 200 = $475
475 since [9.5/10 - 1 – R] = 1 [ K/500 - 1 – R] implies K = 475. R is the redundant 6-month risk-free rate. Note that R is redundant if and only if the beta of the portfolio equals 1, because R cancels out from both sides of the equation.
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