Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A firm had entered into a swap arrangement for notional principal of Rs 10 million with a bank, whereby the bank paid a fixed 9%

A firm had entered into a swap arrangement for notional principal of Rs 10 million with a bank, whereby the bank paid a fixed 9% and received MIBOR semi-annually . It has three more years to go, and just has exchanged the cash flows. The 6-m MIBOR for the next payment of interest was set at 8 %. The next day, the market exhibited a fall and the 6-m MIBOR fell to 7%., leading the firm to believe that it is overpaying. They want to cancel the swap arrangement. In that event what is the amount and direction of the cash flow? Assume flat term structure and annual compounding ( Use bond method)

Step by Step Solution

3.39 Rating (161 Votes )

There are 3 Steps involved in it

Step: 1

Flat term structure and annual compounding Bond Method Calculation b... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Document Format ( 2 attachments)

PDF file Icon
6362ecdbb44c9_236472.pdf

180 KBs PDF File

Word file Icon
6362ecdbb44c9_236472.docx

120 KBs Word File

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Derivatives And Risk Management

Authors: Don M. Chance, Robert Brooks

10th Edition

130510496X, 978-1305104969

More Books

Students also viewed these Accounting questions