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Please help with the attached 4 questions. Thanks! Homework 4 1. Companies X and Y have been offered the following rates per annum on a
Please help with the attached 4 questions. Thanks!
Homework 4 1. Companies X and Y have been offered the following rates per annum on a $5 million 10- year investment: Company X requires a fixed-rate investment; company Y requires a floating-rate investment. Design a swap that will net a bank, acting as intermediary, 0.3% per annum and will appear equally attractive to X and Y. For problems 2 & 3, also attach your calculation schedule for each approach. 2. A $50 million interest rate swap has a remaining life of 16 months. Under the terms of the swap, 6-month LIBOR is exchanged for a fixed rate of 7% per annum (compounded semiannually). The average of the bid-offer rate being exchanged for 6-month LIBOR in swaps of all maturities is currently 5% per annum with continuous compounding. The 6month LIBOR rate was 4.6% per annum 2 months ago. Answer the following questions. Each question worthies 4 points. a) Use bond approach to find the current value of the swap to the party paying floating. b) Use bond approach to find the current value to the party paying fixed c) Use FRA approach to find the current value of the swap to the party paying floating. d) Use FRA approach to find the current value to the party paying fixed 3. A currency swap has a remaining life of 15 months. It involves exchanging interest at 10% on 18 million for interest at 6% on $27 million once a year. The term structure of interest rates in both the United Kingdom and the United States is currently flat, and if the swap were negotiated today the interest rates exchanged would be 4% in dollars and 7% in sterling. All interest rates are quoted with annual compounding. The current exchange rate (dollars per pound sterling) is 1.8500. Answer the following questions. Each question worthies 4 points. a) Use bond approach to find the current value of the swap to the party paying sterling. Homework 4 b) Use bond approach to find the current value to the party paying dollars. c) Use FRA approach to find the current value of the swap to the party paying sterling. d) Use FRA approach to find the current value to the party paying dollars. 4. Company X is based in the United Kingdom and would like to borrow $50 million at a fixed rate of interest for 5 years in US funds. Because the company is not well known in the United States, this has proved to be impossible. However, the company has been quoted 12% per annum on fixed-rate 5-year sterling funds. Company Y is based in the United States and would like to borrow the equivalent of $50 million in sterling funds for 5 years at a fixed rate of interest. It has been unable to get a quote but has been offered US dollar funds at 10.5% per annum. Five-year government bonds currently yield 9.5% per annum in the United States and 10.5% in the United Kingdom. (a)(5pt) Suggest an appropriate currency swap that will net the financial intermediary 0.5% per annum (b)(5pt) If the government bonds' rate remains stable for the next five years, what is the value of the currency swap to the financial institutionStep by Step Solution
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