Assume that six months have passed after initiation of an equity swap. Recallyour initial swap-fixed-rate was 1.48%. In the beginning of the period, the valueof equity (stocks) was $88 whereas the value of equity today is $125. Finally,assume that the notional amount is $5 million. The new discount factors arethe following:TTMPVF0.5yr 0.981.5yr 0.952.5yr0.923.5yr0.89Can you calculate the value of your equity swap today?Hint: Use the formula Value of Equity Swap:(EquityIndexToday/Equity Index Begin Period) - PVF Terminal Year(#Days/360) * SUM of PVFSDuringLifeofSwap-Fixed Rate *Please round your answer to the nearest three decimals if needed. Do nottype the $ symbol.2,375,512.727 margin of error +/- 2%

Certainly! Let's break down the calculation of the value of your equity swap step by step:### 1.…

Answered: Assume that six months have passed…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are currently in an equity swap receiving the QQQ return and paying 4% fixed on a nominal value of $2.5M. The swap has quarterly payments and 5 quarters left. Below is the relevant term structure of LIBOR rates. (a) Complete the following table by filling in the zero-coupon price of a $1 bond. (Enter your answer with 4 decimals, such as 0.9987.) LIBOR rates Zero-coupon Price L(90) 0.0245 L(180) 0.0300 L(270) 0.0330 L(360) 0.0345 L(450) 0.0355 (b) What is the value of the fixed leg, based on a nominal value of $2.5M? (Enter your answer in dollars, without the dollar sign, with 0 decimal, such as 2000000.) (c) What is the value of the variable leg, based on a nominal value of $2.5M? (Enter your answer in dollars, without the dollar sign, with 0 decimal, such as 2000000.) (d) What is the value of the swap, based on a nominal value of $2.5M? (Enter your answer in dollars, without the dollar sign, with 0 decimal, such as 2000000; if value is negative, enter with a negative…
1. Term structure of interest rates and swap valuation Suppose the current term structure of interest rates, assuming annual compounding, is as follows: s1 82 83 84 S5 86 7.0% 7.3% 7.7% 8.1% 8.4% 8.8% What is the discount rate d(0, 4)? (Recall that interest rates are always quoted on an annual basis unless stated otherwise.) Please submit your answer rounded to three decimal places. For example, if your answer is 0.4567 then you should submit an answer of 0.457. Enter answer here
An asset manager is contemplating to enter into a two-year equity swap in which he gets the S&P 500 Index's rate of return in exchange for paying a fixed interest rate. At the start of the trade, the S& P 500 stock index was at 1161.73. Semiannual payments are required under the swap. A. Determine the swap's annualized fixed rate, given the current interest rate term structure as follows: Lo(180) = 0.0501 Lo(360) = 0.0533 L.(540) = 0.0640 | L.(720) = 0.0669 the swap's market value 160 days late Det is in place. the new rm structure L160(20) = 0.0549 L160(200) = 0.0633 L160(380) = 0.0689 L160(560) = 0.0712 The S&P 500 is currently trading at 1214.94. The swap's nominal principal is $110 million. B.
Suppose we observe the following rates: 1R₁ = 0.95%, 1R2 = 1.45%, and E(2r1) = 0.927%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L2 ? Note: Do not round intermediate calculations. Round your percentage answer to 3 decimal places (i.e., 0.12345 should be entered as 12.345). Liquidity premium %
You have estimated spot rates as follows: r₁ = 5.00%,r₂ = 5.40%,r3 = 5.70%,r4 = 5.90%,15 a. What are the discount factors for each date (i.e., the present value of $1 paid in year t)? b. Calculate the PV of the following $1,000 bonds assuming annual coupons and maturity of: (1) 5%, two-year bond; (2) 5%, five-year bond; and (3) 10%, five-year bond. Complete this question by entering your answers in the tabs below. Required A Required B Calculate the PV of the following $1,000 bonds assuming annual coupons and maturity of: (i) 5%, two-year bond; (ii) 5%, five-year bond; and (iii) 10%, five-year bond. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. b-i. 5%, two-year bond b-ii. 5%, five-year bond b-iii. 10%, five-year bond $ Present Value 47.60 X = 6.00%. X < Required A Required B
Consider a 5-year $100 fixed notional equity-for-Libor swap, where the stock price at inception was $35. The swap is based on semi-annual payments on both legs, with an Actual/360 convention for the Libor leg. Two years after inception, on the fourth reset date, the stock price is $40. Assume that the number of days in the next period is 183, and the six-month Libor rate on this reset date is 10%. What is the value of the swap from the point of view of the receiver of equity return Zero +14.29 +4.29 -14.29
In two-months the price of stock will be either $23 or $27. The risk-free interest rate is 10%. The current price of the stock is $25. Suppose the price of the stock will be ST at the end of the two-months and the derivative on the stock will pays off St². Find the value of the derivative. (A) $621.39 (B) $729.39 (C) $529.39 (D) $639.26
Suppose a stock is currently (time t = 0) worth 100. Further, suppose the one year annually compounded interest rate is 2%, and the two year annually compounded rate is 3%. Find the following:a) The forward price for a forward contract on the stock with maturity year T1 = 1. b) The forward price for a forward contract on the stock with maturity year T2 = 2.c) The forward price for a forward contract with maturity T1 = 1 on a ZCB with maturity T2 = 2.d) The forward price for a forward contract with maturity T1 = 1 on a forward contract on the stock with maturity T2 = 2 and delivery price K = 101.
In two-months the price of stock will be either $23 or $27. The risk-free interest rate is 10%. The current price of the stock is $25. Suppose the price of the stock will be ST at the end of the two-months and the derivative on the stock will pays off Sr?. Find the value of the derivative. (A) $621.39 (B) $729.39 (C) $529.39 (D) $639.26
Using the following information, determine the default risk premium on the 10 year AA corporate bond: Rate % inflation 0.80 T-bill 5.00 10y T-Bond 6.00 10y AAA Corporate 6.48 10y AA Corporate 7.03 note: your answer should be to 2 decimal places. So, if your answer is 3.253%, for example, then enter 3.25 without the percent sign.
Using the formula given below: Rbonds =( F − P)/P, if the market price of a $1,200-face-value discount bond changes from $900 to $925, the yield to maturity decreases or increases by enter your response here%. (Round your response to two decimal places.)
Consider an index CDS in whcih the notional amount is $50,000,000. After one of the reference entities defaults, the protection seller pays the protectuon buter $3,000,000 under a ohysical settlement. Assuming the upcoming quarter has 91 days and the CDS spread is 250 basis points, what will be the swap premium? $306,765.12 $325.129.04 $297,013.89 $287,042.33

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