A swap dealer notes the following spot interest rates: six months, 3.45%; twelvemonths, 3.65%; 18 months, 3.90% and 24 months, 4.15%.

a) Determine the equilibrium swap price on a semiannual payment, two-yearswap.

b) The swap dealer enters into a $50 million two-year swap with a fixed rateequal to the solution in part a above. He chooses to hedge this via a stackhedge. Determine the number of Eurodollar futures contracts necessary todo so.Each basis point change in the futures contract isequal to $25.

Week 10 Workshop Questions (do all even Qs from Chapter 14) 1 eVALUate? 2 Note: Final Exam Hints (%) ~f[eVALUate response rate (%)] Give your students an early reminder three weeks priors to the examination period that the eVALUate surveys will be available soon. Tell students in class, and/or by a MyLO announcement that the eVALUate survey period has begun. Give students time in a lecture, tutorial and/or practical for students to complete the survey on their smartphone, tablet, laptop or in a computer lab. Tell and/or email the students to let them know how important their feedback is to you and to the school. Run through the questions with your students in class and explain their context to your unit. Questions are available on the eVALUate homepage. Encourage students to complete their eVALUate surveys on multiple occasions. 3 Note: Assignment 2/Q2: Hedge ratio and contract size 4 5 6 7 8 9 10 Recall? 11 12 +35 basis points 13 14 15 16 17 18 19 20 21 22 Error in PVfloating Pvfixed computation; see the excel table in the next slide 23 Correct answer! 24 25 Error in computation; 6.38% should be 6.13% and 6.39% should be 6.14%; see slide below. 26 27 Correct answer! 28 Omit 29 30 31 32 33