Question
Assume you are a TD bank. Your client contacts you to enter a SWAP where the client receives a fixed rate from you in exchange
Assume you are a TD bank. Your client contacts you to enter a SWAP where the client receives a fixed rate from you in exchange for 3-month LIBOR on a notional principal of $100 million for a period of one-year. The 3-month, 6-month, 9-month and 12-month LIBOR rates (with continuous compounding) are 9%, 10%, 11%, and 12% respectively.
a. What Swap fixed rate should you charge the client? Explain and show all the calculations
b. One day after the contract is signed, Bank of Canada cuts interest rates by 100 basis points. Calculate the value of the SWAP contract to you and the client?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the value of the SWAP contract for both TD Bank and the client after the interest rate ...
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Step: 2
Step: 3
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Advanced Accounting
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III
2nd edition
1934319309, 978-1934319307
