Question
12) You enter into a 1-year deferred, 3-year amortizing interest rate swap. You agree to pay the fixed swap rate. The spot rates (St) at
12) You enter into a 1-year deferred, 3-year amortizing interest rate swap. You agree to pay the fixed swap rate. The spot rates (St) at the time you enter into the swap agreement are shown below. The notional amount is $1,000,000 for the first swap payment and decreases by $250,000 for each subsequent swap payment. Time t 1 2 3 4 St 2.50% 3.00% 3.25% 3.50% (a) (6 points) What is the swap rate? (b) (2 points) What is the expected net payment at the end of year 3 (time t= 3)? (c) (1 point) Does the payer or the receiver get the net payment at the end of year 3?
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