Consider the following interest-rate swap: the swap starts today, January 1 of year 1 the floating-rate payments
Question:
Consider the following interest-rate swap: the swap starts today, January 1 of year 1 the floating-rate payments are made quarterly based on actual/360 the reference rate is three-month LIBOR the notional amount of the swap is $40 million the term of the swap is three years
a. Suppose that today's three-month LIBOR is 5.7%. What will the fixed-rate payer for this interest rate swap receive on March 31 of year 1 (assuming that year 1 is not a leap year)?
b. Assume the Eurodollar CD futures price for the next seven quarters is as follows:
Compute the forward rate for each quar- ter and the floating-rate payment at the end of each quarter. What is the floating-rate payment at the end of each quarter for this interest-rate swap?AppendixLO1
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