Q13.An asset manager wishes to enter into a two year equity swap in which he will receive the rate of return on the S&P 500 index in exchange for paying a fixed interest rate.The S&P 500 index is at 1150.89 at the beginning of the swap .The swap calls for semiannual payment.

A.Calculate the annualized fixed rate on the swap.The current term structure of interest rates is as follows:

L180=0.0498

L360=0.0528

L540=0.0624

L720=0.0665

B.Calculate the market value of the swap 160 day later if the new term structure is

L160(20)=0.0544

L160(200)=0.0629

L160(380)=0.0679

L160(560)=0.0697

The S&P 500 is at 1204.10.The notional principal of swap is $100 million.