Question
Consider the following interest rate swap: -Maturity: 10 years -Notional amount: $10 million -Receive 1-year T-bill rate -Pay fixed 5-year fixed rate 5-year fixed rate
Consider the following interest rate swap:
-Maturity: 10 years
-Notional amount: $10 million
-Receive 1-year T-bill rate
-Pay fixed 5-year fixed rate
5-year fixed rate is currently 5%
(i)Calculate duration of swap for the fixed payment side.
(ii)If 5-year swap interest rate increases by 1%, how much does the one with the fixed payment loose? Note that swap contract exchanges only interest payments.
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Contemporary Financial Management
Authors: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
13th edition
1285198840, 978-1285198842
