2
   

I have a very basic finance question I really appreciate any help I can get..!!!

 
 
Reply Tue 5 Mar, 2013 08:14 am
I am practicing for an upcoming financial class and this is harddddd!!!!

Suppose the current term structure of interest rates, assuming annual compounding, is as follows:

s1 s2 s3 s4 s5 s6
7.0% 7.3% 7.7% 8.1% 8.4% 8.8%

Recall that interest rates are always quoted on an annual basis unless stated otherwise.

Suppose a 6-year swap with a notional principal of $10 million is being configured. What is the fixed rate of interest that will make the value of the swap equal to zero? Round your answer to 3 decimal points (in decimal form, not in percentage).
  • Topic Stats
  • Top Replies
  • Link to this Topic
Type: Question • Score: 2 • Views: 10,825 • Replies: 1
No top replies

 
mxk8612
 
  2  
Reply Thu 27 Aug, 2015 01:24 am
@gorhamsj,
You have to know the Formula to make the value of Swap as Zero

i.e. X= 1-d(0,T)
∑Tt=1 d(0,T)
Where T=6
When you calculate the numerator you get 1-(1/(1.088)^6)= (1-0.6031)= 0.3968
When you calculate the denominator you get { (1/(1.07)^1 +…………….(1/(1.088)^6)}= 4.6069

Finally solving the equation = 0.3968/4.6060 you get 0.0862 or 8.62%
0 Replies
 
 

Related Topics

Hypothetical question... - Question by nononono
I think I screwed up my marriage... - Question by shadowcat3978
18yo needing unique financial advice - Question by blackbear
Is this fair? Marriage advice - Question by Emm2013
Paying off CC - Question by PUNKEY
Markt-to-Market basis - Question by Ulyan
How can you become financially reliable? - Question by mlssufan01
How can we cut out extra money on our wedding? - Discussion by AnkitaJain231
Retirement savings - Discussion by cicerone imposter
 
  1. Forums
  2. » I have a very basic finance question I really appreciate any help I can get..!!!
Copyright © 2024 MadLab, LLC :: Terms of Service :: Privacy Policy :: Page generated in 0.03 seconds on 07/24/2024 at 09:41:35