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The 22 July Overnight Interest Swap rates are: Maturity Rate Compounding frequency 1 week 0.37126% Weekly 1 month 0.25034% Monthly 3 months 0.22830% Quarterly 6
The 22 July Overnight Interest Swap rates are: Maturity Rate Compounding frequency 1 week 0.37126% Weekly 1 month 0.25034% Monthly 3 months 0.22830% Quarterly 6 months 0.22249% Semi-annually 1 year 0.22000% Annually 2 years 0.22000% Quarterly 3 years 0.26000% Quarterly 5 years 0.37000% Quarterly 10 years 0.72000% Quarterly The contracts out to one year only make a single payment. 2 year and longer maturities make quarterly payments. (d) Now suppose that the 15 month, 18 month, and 21 month swap rates are also 0.22000%. Swap rates are par yields, so this means that you can think of these as coupon rates on bonds that have price 100. Bootstrap the 15 month, 18 month, 21 month, and 24 month discount factors. 1 The more kosher way to tackle this problem would be to suppose that the 15, 18, and 21 month rates are as follows: r(1.25) 0.75r(1) + 0.25r(2) r(1.5) 0.5r(1) + 0.5r(2) r(1.75) 0.25r(1) +0.75r(2). The two year zero rate should satisfy: 100 0.055e-r(0.25) 0.25 +0.055e-r(0.5)x0.5 + 0.055e-r(0.75)x0.75 + 0.055e-r(1)x1 + 0.055e-r(1.25) x1.25 +0.055e-r(1.5)x1.5 + 0.055e-r(1.75)x1.75 + 100.055e-r(2)x2.0 You'd then use excel to solve for the level r(2) that satisfies this equation. This is the two year zero rate. If you want to try this, you may find Goalseek in excel helpful. It will vary the contents of one cell to set the value of another cell equal to a particular value
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