Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A bank has bought the following innovative financial instrument called Triple Reverse FRN 8 months ago Notional: 100m EUR Original Maturity: 24 Months Remaining Maturity:
A bank has bought the following innovative financial instrument called "Triple Reverse FRN" 8 months ago Notional: 100m EUR Original Maturity: 24 Months Remaining Maturity: 16 Months Semi-annual Cashflow: 6M Euribor M. In this case M are the months since issuance date (e.g., 6M Euribor = 2%, then 18M since issuance date, payout at 18 cashflow date 6M Euribor. = 6%) Reset Date: in advanced Reference rate at last reset date: 6M Euribor = 0'5% p.a. Repayment: 100% of notional at maturity 6 The current term structure of interest rates, ie zero-coupon rates in % BEY, is given by the function: R(T) = 1 + 0.25*T. Assume 1 month = 1/12 years. - Provide the cashflows and maturities of this financial instrument. - Provide the cashflows and maturities of a perfectly indexed (regular) FRN based on the 6M Euribor with the same original and remaining maturity. - Provide a replication portfolio and the present value for the financial instrument. A bank has bought the following innovative financial instrument called "Triple Reverse FRN" 8 months ago Notional: 100m EUR Original Maturity: 24 Months Remaining Maturity: 16 Months Semi-annual Cashflow: 6M Euribor M. In this case M are the months since issuance date (e.g., 6M Euribor = 2%, then 18M since issuance date, payout at 18 cashflow date 6M Euribor. = 6%) Reset Date: in advanced Reference rate at last reset date: 6M Euribor = 0'5% p.a. Repayment: 100% of notional at maturity 6 The current term structure of interest rates, ie zero-coupon rates in % BEY, is given by the function: R(T) = 1 + 0.25*T. Assume 1 month = 1/12 years. - Provide the cashflows and maturities of this financial instrument. - Provide the cashflows and maturities of a perfectly indexed (regular) FRN based on the 6M Euribor with the same original and remaining maturity. - Provide a replication portfolio and the present value for the financial instrument
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started