Use the following LIBOR-zero rates to find appropriate forward rates: period (years) LIBOR-zero (cont.comp) forward rate for the nth year (cont.comp) 0.5 4.04% 1 3.05% ? 1.5 3.50% ? Questions 1) Find the forward rate for year 1st year and for the 1.5th year , respectively. 2) Find the value of the FRA where you will receive 9% (with semi-annual compounding) on a principal of $100 million for 6 months, which the FRA term starts in year 1 and end in year 1.5. *hint: you would need to convert the appropriate forward rate with continuous compounding from question #1 into a semi-annual compounding rate first. 3) 1 year later, if the 6 month LIBOR turns out to be 5% with semi-annual compounding, how much do you need to pay or receive at 1year point?

Use the following LIBOR-zero rates to find appropriate forward rates: period (years) LIBOR-zero (cont.comp) forward rate for the nth year (cont.comp) 0.5 4.04% 1 3.05% ? 1.5 3.50% ? Questions 1) Find the forward rate for year 1st year and for the 1.5th year , respectively. 2) Find the value of the FRA where you will receive 9% (with semi-annual compounding) on a principal of $100 million for 6 months, which the FRA term starts in year 1 and end in year 1.5. *hint: you would need to convert the appropriate forward rate with continuous compounding from question #1 into a semi-annual compounding rate first. 3) 1 year later, if the 6 month LIBOR turns out to be 5% with semi-annual compounding, how much do you need to pay or receive at 1year point?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 15PROB

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Suppose the current forward curve for one-year rates is the following: Time Period Forward Rate f(0,1) 2.5% f(1,1) 3.6% f(2,1) 4.5% f(3,1) 5.1% Calculate the spot rates for 2-year, 3-years and 4-year spot rates Calculate the forward rates f(1, 2), f(1, 3), and f(2, 2) 3) Use the information to value a 4-year bond that pays 4.5% annual coupons.
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For each of the following situations involving annuities, solve for the unknown. Assume that interest is compounded annually and that all annuity amounts are received at the end of each period. (i = interest rate, and n = number of years) (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Round your final answers to nearest whole dollar amount.)
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