Suppose that at the present time, one can enter 5-year swaps that exchange SOFR for 8%. An off- market swap would then be defined as a swap of SOFR for a fixed rate other than 8%. For example, a firm with 11% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays SOFR and receives a fixed rate of 11% What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $20 million. Note: Do not round intermediate calculations. Round your final answer to the nearest dollar amount. Up-front payment

Suppose that at the present time, one can enter 5-year swaps that exchange SOFR for 8%. An off- market swap would then be defined as a swap of SOFR for a fixed rate other than 8%. For example, a firm with 11% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays SOFR and receives a fixed rate of 11% What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $20 million. Note: Do not round intermediate calculations. Round your final answer to the nearest dollar amount. Up-front payment

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 11% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 11%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $95 million. (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)
Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 7% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 7%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $10 million.
At the present time one can enter five-year swaps that exchange LIBOR for 8%. An off-market swap would be defined as a swap of LIBOR for a rate other than 8%. For example, a firm with a 10% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 10%. What up-front payment will be required to induce a counterparty to take the other side of the swap? Assume a notional principal of $10million. Use 8% as discount rate for all horizons.
An investor enters into a 2-year swap agreement to swap euros at $1.32 per euro. Soon after the swap is created forward prices rise and the new swap price on a similar swap is $1.45. If dollar denominated interest rates are 4.0% and 4.5% on 1- and 2-year zero coupon government bonds, respectively, what is the gain to be made from unwrapping the original swap agreement?
A forward swap involves the exchange of interest payments that do not begin until a specified future time. Which of the following is an example of a forward swap? a. a company paying a variable rate of interest may swap its interest payments with another company that will then pay the first company a fixed rate. b. If the fixed rate is 4.5% and interest rates on similar derivatives with similar maturities fall to perhaps 3.5%, the fixed-rate payer might call the swap to refinance at that lower rate. c. if a stock price was sitting at $50 per share and you wanted to buy a call option on it for a $45 strike price at a $5.50 premium (which, for 100 shares, would cost you $550) you could also sell a call option at a $55 strike price for a $3.50 premium (or $350), thereby reducing the risk of your investment. d. Company ABC's shares trade at $60, and a call writer is looking to sell calls at $65 with a one-month expiration. If the share price stays below $65 and the…
Suppose the three-year swap rate for a swap with annual payments is 3.2% and that OIS (risk-free) zero rates for maturities of one, two and three years are 2.5%, 2.7% and 2.9% respectively. What is the value of a three-year swap where 4% is received and TSOFR is paid on a principal of $100 million? All rates are annually compounded.
Explain in detail how a five year plain vanilla interest rate swap with a notional value of $1,000,000 and a price of 3% can be used: (Illustrate with diagrams) i) To speculate on changes in interest rates; ii) To s hedge against the risk of an increase in interest rates.
Suppose we are pricing a five-year Libor-based interest rate swap with annual resets (30/360 day count). The estimated present value factors are given below: Maturity(years) Present ValueFactors1 0.9900992 0.9778763 0.9651364 0.9515295 0.937467 What is the fixed rate of the swap? Answer in 4 decimal places
Suppose that some time ago a financial institution entered into a swap where it agreed to make semiannual payments at a rate of 3.5% per annum and receive LIBOR on a notional principal of $300 million. The swap now has a remaining life of 1.15 years. Payments will therefore be made 0.15, 0.65, and 1.15 years from today. The risk-free rates with continuous compounding for maturities of 0.15, 0.65, and 1.15 years are 2.8%, 3.2%, and 3.4%, respectively. We suppose that the forward LIBOR rates for the 0.15-to- 0.65 year and the 0.65-to-1.15 year periods are 3.4% and 3.7%, respectively, with semiannual compounding. The LIBOR rate applicable to the exchange in 0.15 years was determined 0.35 years ago. Suppose it is 2.9% with semiannual compounding. What is the floating cash flow at time 1.15 (in $ millions)?
Consider a 4-year 5% bond swap in euros for 1 million notional value. In other words, there will be three interest payments followed by a final payment of interest plus principal, all made in euros. Assume that the appropriate discount rate is 9% and the spot rate is 1.05 USD/EUR when answering the following questions related to possible swap contracts. a. What is the net present value of the payments described above (in euros)? b. If you want to offset the euro payments with a single USD payment at the end of year two, what is the appropriate amount? (This could be described as a bullet repayment.) c. Alternatively, if you want to offset the euro payments with four equal USD payments at the end of each year, what is the appropriate amount? (This could be described as an annuity repayment.) Show work
A firm can issue one of the listed products and convert them into the floating rate using IR swaps (LIBOR for 3.7% fixed). What is the lowest floating rate that the firm can get? Fixed rate note: 4% Simple FRN: L + 0.5% Inverse floater: 7.6% - L (e.g., if we can pay only L + 0.1% that would be great, but can we obtain such a low rate?) a.) L + 0.1% b.) L + 0.2% c.) L + 0.3% d.) L + 0.5%
An investor holds the fixed-payer position in a 7.69%/LIBOR swap with $7M notional principal, semi-annual payments, and exactly one-year remaining. What is the value of the existing fixed-payer position, if the swap rate for new one-year swaps with matching notional principal is 3.21%/LIBOR?

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