Assignment 2: Swap Pricing Assume that the alternating Swap Bond and Forward rates observed for the next 10 years are: Swap Rates 1.5000% Forward Rates Swap Rates Forward Rates 3.5810% 2.5126% 3.5000% Year 1 2 3 4 5 Year 6 7 8 9 10 2.5000% 5.8518% 4.6200% 4.0000% 3.2500% 9.8996% a) Compute the fixed rate on a 10 year $100 million vanilla Swap, where the cash flows are bond like, using the forward rate methodology and the spot rate approach. Assume annual compounding. b) After the swap is incepted, if the floating rates realized in the future are exactly the initially estimated forward rates, what are the annual cash flows for the fixed and floating side of the swap? What is the present value of each side of the swap and the net present value of the overall swap? Assignment 2: Swap Pricing Assume that the alternating Swap Bond and Forward rates observed for the next 10 years are: Swap Rates 1.5000% Forward Rates Swap Rates Forward Rates 3.5810% 2.5126% 3.5000% Year 1 2 3 4 5 Year 6 7 8 9 10 2.5000% 5.8518% 4.6200% 4.0000% 3.2500% 9.8996% a) Compute the fixed rate on a 10 year $100 million vanilla Swap, where the cash flows are bond like, using the forward rate methodology and the spot rate approach. Assume annual compounding. b) After the swap is incepted, if the floating rates realized in the future are exactly the initially estimated forward rates, what are the annual cash flows for the fixed and floating side of the swap? What is the present value of each side of the swap and the net present value of the overall swap