Investor A enters in a Par Asset Swap agreement with Bank B. He decides to buy from the bank, $100milion of a 2yr bond with 6% coupon and 7% yield. As per the swap agreement, he will pay the bank swap rate of 5% and get LIBOR. The swap is also 2 years maturity. The payments are semi-annual on a 30/360 day count basis. The annualized forward curve is given as below: (Hint: use the curve to calculate the CDF.The CDF you calculate is semiannual, hence the spread is semi-annual)

1) Calculate the par asset swap spread?

2) Assume now that the yield on the bond is 5.5%. Calculate the par asset swap spread.

Period Year Forward 0.5 5.2500 W NA 2 1 5.7572 3 1.5 6.2733 4. 2 6.7994 Period Year Forward 0.5 5.2500 W NA 2 1 5.7572 3 1.5 6.2733 4. 2 6.7994