Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. let ti, i=1, … ,n be a set of dates, on which pa

Let Ti, i=1, … ,n be a set of dates, on which payments of the floating...

90.2K

Verified Solution

Question

Finance

Let Ti, i=1, … ,n be a set of dates, on which payments of thefloating leg of an interest

rate swap occur. The payoff of the floating leg of the swap attime Ti is Fi + s where Fi is

the reference rate of the floating leg and s is a constantspread. For simplicity, let’s

assume that the floating and fixed payments happen on the samedates. Also, ri is the

risk-free rate on the same tenor. Let N be the notional of theswap.

1) What is the fixed semiannual swap rate calculated from therisk-free rates? Please

specify mathematical formula (no need for exact numerical resultat this point).

2) Let the semiannual swap rate calculated in 1) be the fixedleg payment of the

swap. What is the constant spread s which sets the present valueof the swap

position to be zero? Please specify mathematical formula (noneed for exact

numerical result at this point).

How to address the question ?2?

Answer & Explanation Solved by verified expert
3.9 Ratings (417 Votes)
1 Businesses uses different type of Swap to get himself hedged Swap rate help to lock in and fixed futureSFR rate is the rate which one party agree to pay in return of Uncertain or    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Solve the follwing problem.CHART OF ACCOUNTSBeartooth Co.General LedgerASSETS110Cash120Accounts Receivable125...Solve the follwing problem.CHART OF ACCOUNTSBeartooth...

Accounting
Q

Given: bicoid genes are maternal genes; kruppel genes are gap genes, even-skipped genes are pair rule...

Biology
Q

1. A hot solution of a particular compound was allowed to cool to room temperature. After...

Chemistry
Q

An honest coin is tossed n=3600 times. Let the random variable Y denote the number of tails...

Advance Math
Q

2 The apparent coefficient of expansion of a liquid when heated in copper vessel is...

Physics
Q

Greta and Greg are twins Their parents want to know if watching television helps or...

Algebra
Q

Which of the following most correctly states about the rationale for using estimated (allocated) manufacturing...

Accounting
Q

Perkins Company owns 85% of Sheraton Company. Perkins Company sells merchandise to Sheraton Company at...

Accounting
Q

Required: Prepare the cash flows from operating activities section of the statement of cash flows...

Accounting
Q

26. Successful budget implementation depends on clear communication of T.F. performance expectations and budget targets,...

Accounting
Q

Gentile Corporation makes a product with the following standard costs Input Standard Quantity or Hours...

Accounting
Q

Cullumber Railroad Co. is about to issue $286,000 of 10-year bonds paying an 12% interest...

Accounting