Question
Suppose that a bank has agreed to the following terms of an interest rate swap: - The notional principal is CAD 300 million and the
Suppose that a bank has agreed to the following terms of an interest rate swap:
- The notional principal is CAD 300 million and the remaining life of the swap is 11 months.
- The bank pays 8% per annum, and receives three-month LIBOR. - Payments are exchanged every three months. -
The swap (fixed) rate is 11% per annum for all maturities.
- The three-month LIBOR rate a month ago was 12.5% per annum.
All rates are compounded quarterly.
Estimate the value of the swap using
a) a bond-price valuation method, and
b) a FRAs-based method?
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Accounting What The Numbers Mean
Authors: David Marshall, Wayne McManus, Daniel Viele
8th Edition
0073379417, 978-0073379418
