Lecture 12 slide 16:

Use Excel or your favorite software to reproduce the table given in slide 16 of lecture12 and then calculate the change in the swap price if all of the forward rates increase by 235 basis points. In this exercise assume that you have just entered into the swap(so the fixed leg payments are all 10% as indicated in the slide). Briefly explain the swap price change.

Par DF 9.01 Given the following term-structure of par coupons ... Interest Rates (%) Payments Present Values Year Spot Forward Fixed Float Fixed Float 1 8.75 8.75 8.75 0.9195 0.10 0.0875 0.0920 0.0805 2 9.00 9.27 0.8415 0.10 0.0927 0.0842 0.0780 3 9.25 9.28 9.82 0.7662 0.10 0.0982 0.0766 0.0753 4 9.50 9.56 10.41 0.6940 0.10 0.1041 0.0694 0.0722 5 9.75 9.86 11.04 0.6250 0.10 0.1104 0.0625 0.0690 6 10.00 10.16 11.72 0.5594 0.10 0.1172 0.0559 0.0656 Sum of PV Payments = 0.4406 0.4406 PV of Principal = 0.5594 0.5594 PV of All Cash Flows 1.0000 1.0000 Par DF 9.01 Given the following term-structure of par coupons ... Interest Rates (%) Payments Present Values Year Spot Forward Fixed Float Fixed Float 1 8.75 8.75 8.75 0.9195 0.10 0.0875 0.0920 0.0805 2 9.00 9.27 0.8415 0.10 0.0927 0.0842 0.0780 3 9.25 9.28 9.82 0.7662 0.10 0.0982 0.0766 0.0753 4 9.50 9.56 10.41 0.6940 0.10 0.1041 0.0694 0.0722 5 9.75 9.86 11.04 0.6250 0.10 0.1104 0.0625 0.0690 6 10.00 10.16 11.72 0.5594 0.10 0.1172 0.0559 0.0656 Sum of PV Payments = 0.4406 0.4406 PV of Principal = 0.5594 0.5594 PV of All Cash Flows 1.0000 1.0000