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

E AGES OF STARS The H-R Diagram 104 The Hertzsprung-Russell diagram of stars is a bivariate plot, comparing the surface temperature to the luminosity. Astronomers use the H-R diagram to look for relationships between these physical properties of stars. Much like the plot for humans, there are other, unplotted variables that determine where stars are located in the H-R diagram-age 102 and mass play key roles. The figure on the right shows the H-R diagram for 13,500 stars near the Sun. These stars have a wide range of ages, Luminosity (Lsum) and just happen to be nearby at the present time in our Galaxy's history. Describe how this plot is analogous to the 100 plot of human heights and weights. 10-2 10 Describe the locations of stars in this diagram-are they 4.1 3.9 3.8 3.7 3.6 3.5 3.4 randomly located, or are there trends? Are some regions of log Temperature (K) the plot more densely packed with stars than other regions or are the stars evenly distributed? Think of the analogy to the human height and weight plot. What can you interpret about the lifetime of stars based on the density of points in the H-R diagram? Where do stars spend most of their lives? Where are stars changing rapidly in the H-R diagram?1. A bivariate normal random vector (X1, X2)' is defined by X1 = M1 + 01 2 (1) X2 = 12 + 02 2 1 - PU2) where U1 and U2 are independent and standard normal random variables, of and 02 are positive numbers, #1 and /2 are real numbers, and -1