1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
LuckyWell [14K]
3 years ago
5

A 3-year interest rate swap has a level notional amount of $300,000. Each settlement period is one year and the variable rate is

the one-year spot interest rate at the beginning of the settlement period. The current spot rate is determined by the following prices for zero-coupon bonds with $1 face amount:
Time of Maturity 1 Year 2 Year 3 Year 4 Year 5 Year
Price 0.97 0.93 0.88 0.82 0.75

Required:
a. Calculate the swap rate.
b. Caleulate the net swap payment at the end of the first year.
c. One year has elapsed and the one-year spot interest rate at the start of year 2 is 4.45%. Calculate the net swap payment at the end of the second year for the payer.
d. Two years have elapsed and the one-year spot interest rate at the start of year three is 5.25 Calculate the market value of the swap.
Business
1 answer:
tankabanditka [31]3 years ago
4 0

Answer:

(a)0.04317 (b) 3672 which will be paid by the payer to the receiver (c) -399. so, the 399 which will be paid by the receiver to the payer (d) 2659.38

Explanation:

Solution

(a) Swap Rate (R) = (1 - P₃)/(P₁+P₂+P₃)

= (1 – 0.88)/(0.97 + 0.93 + 0.88)

= 0.04317

(b) The payer pays the fixed interest rate and gets the variable interest rate.

Then, the fixed interest rate is known as the  swap rate which is 4.317%.

Now,

The variable rate is the one year spot rate for the first year of the loan. which is r₁ = 1/P₁ -1 = 1/0.97 - 1 = 0.03093

Thus,

The net swap payment becomes (300,000)(0.04317) - (300,000)(0.03093) = 3672 which will be paid by the payer to the receiver.

(c) The payer pays the fixed interest rate and receives the variable interest rate. The fixed interest rate is the swap rate which is 4.317%.

Thus,

The variable rate is the one year spot rate for the second year of the loan is 4.45%.

So,

The net swap payment becomes (300,000)(0.04317) - (300,000)(0.04450) = -399.

Therefore, the 399 which will be paid by the receiver to the payer.

(d) The market value is the present value of expected future cash flows. under this swap, the variable rate has been swapped for the constant swap rate. There is one year left under the swap.

Then,

The expectation is that the swap owner will pay (300,000)(0.04317) and receive (300,000)(0.0525). these payments would be made at the end of one year. Therefore, the market value will be:

{(300,000)(0.0525) - (300,000)(0.04317)}/1.0525 = 2799/1.0525 = 2659.38

You might be interested in
If you guess the number im thinking of illl give you 100 points
Anvisha [2.4K]

Answer:

49 is my guess!!!!!!!!

5 0
3 years ago
Read 2 more answers
Suppose Chef Kitchen manufactures cast iron skillets. One model is a​ 10-inch skillet that sells for $ 28 . Chef Kitchen project
Lerok [7]

Answer:

production schedule for July = 815 10-inch skillets

Explanation:

price of 10-inch skillet $28

projected sales 625 units

costs:

  • direct materials $6
  • direct labor $3
  • manufacturing overhead $5
  • sales and administrative expenses $1,000

beginning inventory 60 units

ending inventory 40% of August sales

production during July = (projected sales - beginning inventory) + (40% x projected sales August) = (625 units - 60 units) + (40% x 625 units) = 565 units + 250 units = 815 10-inch skillets

6 0
3 years ago
Jane is conducting interviews in order to develop a customer profile for her client. She customizes each interview to each parti
adoni [48]

Answer:

Unstructured interview.

Explanation:

Unstructured interview are type of interview, where question are not preset or prearranged. Question asked in this type of interview are more informal and open ended, which allow interviewe to talk in depth and put his own point of view in his or her word. There is always purpose to conduct unstructured interview. People who conduct unstructured interview are well informed about the candidate and information, which he want out of respondent.

8 0
3 years ago
Mission Corp. borrowed $50,000 cash on April 1, 2016, and signed a one-year 12%, interest-bearing note payable. The interest and
ikadub [295]

Answer:$4,500---B, ie the 2nd option

Explanation:

From April to December we have 9 months

Interest Expense is given as Loan x Interest Rate x duration

Interest Expense = 50000 x 12% x 9/12 =

50,000x 0.12x9/12= $4,500

8 0
3 years ago
When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? A) Inc
Kamila [148]

Answer:

B) Income from subsidiary is recognized from date of acquisition to year-end.

Explanation:

When an individual or a company purchase another business, they are responsible for all the gains and losses generated by that business starting from the exact moment that the sales transaction has been completed. E.g. if I buy a business on January 20, at 10 AM, I am completely responsible for the things that happen in the company after 10 AM.

4 0
3 years ago
Other questions:
  • Costs of production that affect people who have no control over how much of a good is produced
    8·1 answer
  • A firm has a debt-equity ratio of 57 percent, a total asset turnover of 1.12, and a profit margin of 4.9 percent. The total equi
    11·1 answer
  • Partially correct answer iconYour answer is partially correct. This information relates to Windsor Co.
    13·1 answer
  • A promise made by a manufacturer or dealer that a product meets certain quality standards and that defective parts will be repla
    12·1 answer
  • On January 1, 2021, Avondale Lumber adopted the dollar-value LIFO inventory method. The inventory value for its one inventory po
    9·1 answer
  • On January 1, 2003, Lane, Inc. acquires equipment for $100,000 with an estimated ten‐year useful life. Lane estimates a $10,000
    6·1 answer
  • Your company purchases $50,000 of inventory from a wholesaler who allows you 45 days to pay. In addition, the wholesaler offers
    13·1 answer
  • Give 2 or 3 reasons on why cheaper delivery is better
    14·2 answers
  • Pyschographic segmentation involves grouping people based on where they live.
    11·1 answer
  • Rebekah Grace has worked for Specoly Inc., for 20 years without taking a vacation. An internal control feature that would addres
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!