Question
LIBOR discount rates L(0,t) are given in the table below. Consider a 2-year swap whose floating payments are at the then-current LIBOR rate, and whose
LIBOR discount rates L(0,t) are given in the table below. Consider a 2-year swap whose floating payments are at the then-current LIBOR rate, and whose fixed payments are at the annual rate of Rfix = 0.025
| Payment Date | L(0,t) |
|---|---|
| 0.5 | 0.9821 |
| 1.0 | 0.9708 |
| 1.5 | 0.9527 |
| 2.0 | 0.9416 |
a) If the notional principal is 1 million dollars, what is the value of the swap?
b) What is the par swap rate? In other words, what value of Rfix sets the value of the swap equal to zero?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Public Finance
Authors: Harvey Rosen, Ted Gayer
10th edition
9781259716874, 78021685, 1259716872, 978-0078021688
