Question
Sam Company and Jack Company entered into a semi-annual pay plain vanilla interest rate swap with a nominal value of $8,000,000. Jack offered to pay
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Sam Company and Jack Company entered into a semi-annual pay plain vanilla interest rate swap with a nominal value of $8,000,000. Jack offered to pay Bill a fixed annual rate of 2.75% (with semi-annual compounding). The remaining life of the swap is nine months. Assume the six-month LIBOR rate observed three months ago was 2.6% with semi-annual compounding. Todays three and nine month LIBOR rates are 2.526% and 2.846% (with continuous compounding). The implied forward rate is 3.0287% with semi-annual compounding. What is the value of the swap to Jack Company using the FRA methodology? Do not round intermediate calculations.
| A. | $2,009 | |
| B. | $4,950 | |
| C. | $5,613 | |
| D. | -$1,407 |
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Inefficient Markets An Introduction To Behavioral Finance
Authors: Andrei Shleifer
1st Edition
0198292279, 978-0198292272
