For homewwork submission, as many steps as possible would be appreciated. 1. Forwards...
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For homewwork submission, as many steps as possible would be appreciated.
1. Forwards and Swaps On March 15, 2018, Firm A decides to enter a semi-annual, 2-year interest rate swap with Bank B, the notional being 1 million USD. The continuously compounded interest rates on March 19, 2018 are as below: Maturity 0.5 1 1.5 2 Interest rate 0.2107 0.1625 0.1488 0.1438 One year later, on March 19, 2019, the continuously compounded interest rates change to: Maturity 0.5 1 1.5 2 Interest rate 0.5754 0.3567 0.2872 0.2554 a. On March 19, 2018, what is the continuously compounded forward rate over March 19, 2019 to September 1st, 2019? b. On March 15, 2018, if you find the forward price of six-month zero-coupon bond over March 1st, 2019 to September 1" is lower than that the fair price, describe the arbitrage strategy using on- the-run zero-coupon bonds. c. What is the swap rate that Firm A and Bank B agree on? d. What is the value of the swap position for the floating-rate payer on March 19, 2019 after the exchange of payments? 1. Forwards and Swaps On March 15, 2018, Firm A decides to enter a semi-annual, 2-year interest rate swap with Bank B, the notional being 1 million USD. The continuously compounded interest rates on March 19, 2018 are as below: Maturity 0.5 1 1.5 2 Interest rate 0.2107 0.1625 0.1488 0.1438 One year later, on March 19, 2019, the continuously compounded interest rates change to: Maturity 0.5 1 1.5 2 Interest rate 0.5754 0.3567 0.2872 0.2554 a. On March 19, 2018, what is the continuously compounded forward rate over March 19, 2019 to September 1st, 2019? b. On March 15, 2018, if you find the forward price of six-month zero-coupon bond over March 1st, 2019 to September 1" is lower than that the fair price, describe the arbitrage strategy using on- the-run zero-coupon bonds. c. What is the swap rate that Firm A and Bank B agree on? d. What is the value of the swap position for the floating-rate payer on March 19, 2019 after the exchange of payments
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