Ali Company and Bill Company entered into a semi-annual pay plain vanilla interest rate swap with a nominal value of $8,000,000. Bill offered to pay Ali a fixed annual rate of 2.75% (with semi-annual compounding). The remaining life of the swap is nine months. Assume the six-month LIBOR rate observed three months ago was 2.6% with semi-annual compounding. Today's three and nine month LIBOR rates are 2.526% and 2.846% (with continuous compounding). The implied forward rate is 3.0287% with semi-annual compounding. What is the value of the swap to Bill Company using the FRA methodology? Do not round intermediate calculations.

A.$4,950

B.$2,009

C.-$1,407

D.$5,613

Ali Company and Bill Company entered into a semi-annual pay plain vanilla interest rate swap with a nominal value of $8,000,000. Bill offered to pay Ali a fixed annual rate of 2.75% (with semi-annual compounding). The remaining life of the swap is nine months. Assume the six-month LIBOR rate observed three months ago was 2.6% with semi-annual compounding. Today's three and nine month LIBOR rates are 2.526% and 2.846% (with continuous compounding). The implied forward rate is 3.0287% with semi-annual compounding. What is the present value of the net cash flow (or payoff) at nine months point to Bill Company?

A.$4,556

B.$4,913

C.$8,904

D.$10,913

Consider the linear model Y = alX1 + a2X2 +b where the vector ( X1, X2) has a bivariate Gaussian distribution with means #1, #2, variances of, 02, and correlation coefficient p12. Consider the vector (X1, Y). One can show (via some involved calculus) that (X1, Y) has a bivariate Gaussian distribution. Determine its two means, two variances, covariance, and correlation coefficient. Remark: In lecture we considered precisely this problem but under the as- sumption that X] and X2 are independent.Let X a normal random variable with mean u and variance o . Consider Z = X - H Then Z is a O Bernoulli random variable O exponential random variable O Binomial random variable O normal random variable O uniform continuous random variable O standard normal random variable O geometric random variable3. Consider the model Yt = Bo+ BIXt + ut E(ujX) = 0 ut = put-1+ Et Ipl